What is the firm's cash flow from financing?

5.3    

a.   Eighteen-year-old Linus is thinking about taking a five-year university degree. The degree will cost him $25,000 each year. After he's finished, he expects to make $50,000 per year for 10 years, $75,000 per year for another 10 years, and $100,000 per year for the final 10 years of his working career. All these values are stated in real dollars. Assume that Linus lives to be 100 and that real interest rates will stay at 5% per year throughout his life.

i.    Calculate the present value of his lifetime earnings.          (1 mark)

ii.   Calculate the present value of the cost of his schooling.     (1 mark)

iii. Subtract the present value of the schooling cost from his lifetime labour earnings to determine his human capital. Use that value to determine his permanent income, that is, the equal annual consumption Linus could enjoy over the rest of his life.                                         (1 mark)

b.   Linus is also considering another option. If he takes a job at the local grocery store, his starting wage will be $40,000 per year, and he will get a 3% raise each year, in real terms, until he retires at the age of 53. Assume that Linus lives to be 100.

i.    Calculate the present value of Linus’s lifetime earnings, using a spreadsheet or using the growing annuity formula. You can find the formula in the lesson notes, at the end of Note 7 in Lesson 4.         (1 mark)

ii.   Use that value to determine Linus’s permanent income, i.e., how much can Linus spend each year equally over the rest of his life?                                                  (1 mark)

c.   Do you think Linus is better off choosing option a. or option b.? Consider both financial and non-financial measures.                                                                        

What is the firm's total change in cash from the prior year to the current year?

BUSINESS CASE: THIS IS BUSINESS
In recent years, because of the Public Procurement Act, District Assemblies have been given the authority to
award contracts on certain projects, which do not cost more than 150 million cedis. In view of this, at the District
where I work, the Assembly was to construct three markets, at 150 million cedis per project. However, the law
is that before such contracts are awarded, they should be made known to the general public by advertising in
any of the local newspapers. Therefore, these three market projects were subsequently put on tender through
publication in one of the Ghanaian daily newspapers.
One week after the advertisement, I received an Expedited Mail Service (EMS) letter, inviting me to Accra to
meet a man I did not know for an important message at a particular date. Initially I did not want to honour the
invitation. However, upon reflection I decided to go and meet the man because I was expecting some important
information from a brother who was in the United States. On arriving in Accra, specifically at the man’s office
in the Kantamanto commercial area, I was told the man was attending a meeting at a nearby office building and
had directed that I should wait for him. I met the man’s secretary at the office. He served me a bottle of malta
guinness.
About twenty minutes later, the man arrived from the meeting and I was introduced to him. Beaming with
smiles, he in turn introduced himself by mentioning his name as Mr. Opoku Afriyie. As it was already
lunchtime, he suggested that we go to a restaurant for lunch. We found ourselves in a popular restaurant. I was
asked to order whatever I wished to eat. But, as I did not know why I was being entertained, I was not at ease.
The man kept saying, “Oh feel free, you are at home”. There was no doubt that he wanted to impress me.
We, finally, drove back to his office. It was then he introduced himself to me as a building contractor and
explained why he had invited me to Accra. He told me that he had read the advertisement from my Assembly
inviting contractors to bid for the construction of the three markets. He was interested, he continued. He went
on to say that, at a meeting somewhere, a friend told him to contact me because I was the schedule officer for
those projects, he would be grateful and he was prepared to offer something. He ended by saying: “My brother,
this is business that we are talking of. Here is ¢10,000.00 and 2 packets of roofing sheets. I want you to tell
me the bill of quantities and estimated quotations from your consultants, and also quotations from other
bidders”.
In fact, I was flabbergasted and surprised to hear that. For five minutes, I was quiet and the man was doing all
the talking. First, I needed six hundred cedis to pay my younger sister’s school fees. Second, I needed about
one packet of aluminum roofing sheets to renovate my parents’ building. However, because it was difficult to
say no to him and at the same time, I did not want to accept the offer, I politely suggested to the man to submit
his completed contract document, telling him that his chances of winning were high, as at the time nobody had
come for any of the contract forms. He was persistent and was prepared to offer an additional ¢500.00. But I
refused to take anything from him. I then asked to leave; he asked his driver to take me to the State Transport
Yard to take a bus back. He gave me ¢500.00 to pay for my transport fare, which I took.
i. What kind of person would respond to a letter of invitation from an unknown person the way the man
did?
ii. Under what ethical theory will you classify the officer’s action?
iii. Are there times when it is better to be tactful than honest?
iv. Would you have taken the ¢500, 00 as transport fare, explain?
v. What does the term ‘this is Business’ mean in the passage?
vi. Describe the ethics of Mr. Opoku Afriyie
vii. What do you understand by the term ethical dilemma?
viii. Besides this case, mention three other ethical issues that public officials encounter in their daily work
life
ix. Mention four (4) importance of values to you as an individual or the District Assembly you work with.

x. Discuss the Blanchard and Pearl’s model of resolving ethical dilemmas

Case 15-67 Manipulation of Ratios and Ethical Behavior

Pete Donaldson, president and owner of Donaldson Mining Supplies, was concerned about the firm’s liquidity. He had an easy time selling supplies to the local coal mines, but had a difficult time collecting the receivables. He had even tried offering discounts for prompt payment. The outcome wasn’t as expected. The coal mines still took as long to pay as before, but took the dis- count as well. Although he had complained about the practice, he was told that other suppliers would provide the supplies for the same terms. Collections were so slow that he was unable to pay his own payables on time and was receiving considerable pressure from his own creditors.

The solution was a line of credit that could be used to smooth his payment patterns. Getting the line of credit was another matter, however. One bank had turned him down, indicating that he already had too much debt and that his short-term liquidity ratios were marginal. Pete had begun the business with $5,000 of his own capital and a $30,000 loan from his father-in-law. He was making interest payments of $3,000 per year to his father-in-law, with a promise to pay the principal back in 5 years (3 years from now).

While mulling over his problem, Pete suddenly saw the solution. By changing accountants, he could tell the next accountant that the $30,000 had been donated to the business and therefore would be reclassified into the equity section. This would dramatically improve the debt ratio. He would simply not disclose the $3,000 annual payment—or he could call it a dividend. Additionally, he would not tell the next accountant about the $6,000 of safety gear that was now obsolete. That gear could be added back, and the current ratio would also improve. With an improved financial statement, the next bank would be more likely to grant the needed line of credit.

Required:

1. Evaluate Pete Donaldson’s ethical behavior.

2. Suppose that you have been hired as the chief finance officer for Donaldson Mining

   Supplies. You have been told that the $30,000 has been donated to the company. During the second week of your employment, the father-in-law drops in unexpectedly and introduces himself. He then asks you how the company is doing and wants to know if his $30,000 loan is still likely to be repaid in 3 years. Suppose also that on the same day you overhear an employee mention that the safety equipment is no longer usable because regulations now require a newer and different model.

a. Assume that you have yet to prepare the financial statements for the loan application. What should you do?

b. Suppose that the financial statements have been prepared and submitted to the bank. In fact, that morning, you had received a call from the bank, indicating that a decision was imminent and that the line of credit would likely be approved. What should you do under these circumstances?

3. Suppose that Pete invites you in as a consultant. He describes his problem to you. Can you think of a better solution?

Mrs. McLaughlin is your 42-year-old female patient who is being discharged following an episode of symptomatic hypoglycemia with seizure. Mrs. McLaughlin admits to not taking her medication properly because in the past it made her blood sugar get way too low and she didn’t have any candy or orange juice around. She ended up going into a “coma” that time too, and an ambulance had to bring her to the hospital.

Mrs. McLaughlin’s vital signs are as follows:

Height 5’5” Weight 118 lbs   TPR   97.9/72/16      BP 118/78 mm HG

Mrs. McLaughlin’s medication list prior to admission included the following:

Glyburide 10 mg p.o. b.i.d.

Ortho-tri-cyclen daily

Mrs. McLaughlin wants to take better care of her diabetes but doesn’t understand why she has to take a medication that can make her blood sugar get low and risk a hypoglycemic coma. Her best friend has diabetes and takes a different kind of pill. She says her friend tells her that there is no risk of low blood sugar with that medicine; Mrs. McLaughlin wants to know why she can’t take that medicine as well. She says she asked her Dr. and the Dr. just said no.

She is understandably afraid to take her medication after the experience that she had. You are concerned that she will not take her medication anymore when she goes home. She doesn’t understand why she has to take a medication with this side effect when her friend has the same disease and can take something different. We know that patients are more inclined to adhere to a therapeutic regimen if they understand the rationale. Based on the information provided, what will you tell her? (Identify the problem – 5 points)

Can you explain, in some detail and in language she can understand, why she cannot take the same medication as her friend? (Rationale -- 5 points).

The night before discharge, Mrs. McLaughlin is feeling almost back to normal. Her son comes to visit her and sneaks in some food from a local fast food establishment that is her favorite. She doesn’t mention it to staff, but she fills up on fast food! The next morning she wakes up with crampy abdominal pain and explosive diarrhea. She tells you that she has already had three almost uncontrollable bowel movements and she knows she won’t even make it home in the car. She is asking for something to stop her diarrhea so she can go home.

How do you counsel this patient? Do you advocate for antidiarrheal medication? If so, which medication will you request of the resident when you call? If not, why not? (5 points)

List two appropriate references (outside of course materials) to support your response. (5 points)

Analyze implications for nursing practice in general. Are you able to take what you’ve learned in this unit – and in this case – and make any improvement to your own practice? How can it impact your current nursing role? (5 points)

Case 15-67 Manipulation of Ratios and Ethical Behavior

Pete Donaldson, president and owner of Donaldson Mining Supplies, was concerned about the firm’s liquidity. He had an easy time selling supplies to the local coal mines, but had a difficult time collecting the receivables. He had even tried offering discounts for prompt payment. The outcome wasn’t as expected. The coal mines still took as long to pay as before, but took the dis- count as well. Although he had complained about the practice, he was told that other suppliers would provide the supplies for the same terms. Collections were so slow that he was unable to pay his own payables on time and was receiving considerable pressure from his own creditors.

The solution was a line of credit that could be used to smooth his payment patterns. Getting the line of credit was another matter, however. One bank had turned him down, indicating that he already had too much debt and that his short-term liquidity ratios were marginal. Pete had begun the business with $5,000 of his own capital and a $30,000 loan from his father-in-law. He was making interest payments of $3,000 per year to his father-in-law, with a promise to pay the principal back in 5 years (3 years from now).

While mulling over his problem, Pete suddenly saw the solution. By changing accountants, he could tell the next accountant that the $30,000 had been donated to the business and therefore would be reclassified into the equity section. This would dramatically improve the debt ratio. He would simply not disclose the $3,000 annual payment—or he could call it a dividend. Additionally, he would not tell the next accountant about the $6,000 of safety gear that was now obsolete. That gear could be added back, and the current ratio would also improve. With an improved financial statement, the next bank would be more likely to grant the needed line of credit.

Required:

1. Evaluate Pete Donaldson’s ethical behavior.

2. Suppose that you have been hired as the chief finance officer for Donaldson Mining

   Supplies. You have been told that the $30,000 has been donated to the company. During the second week of your employment, the father-in-law drops in unexpectedly and introduces himself. He then asks you how the company is doing and wants to know if his $30,000 loan is still likely to be repaid in 3 years. Suppose also that on the same day you overhear an employee mention that the safety equipment is no longer usable because regulations now require a newer and different model.

a. Assume that you have yet to prepare the financial statements for the loan application. What should you do?

b. Suppose that the financial statements have been prepared and submitted to the bank. In fact, that morning, you had received a call from the bank, indicating that a decision was imminent and that the line of credit would likely be approved. What should you do under these circumstances?

3. Suppose that Pete invites you in as a consultant. He describes his problem to you. Can you think of a better solution?

Case 10.1

"Pauline McKee, an 87-year-old grandmother, was attending a family reunion at the Isle Casino Hotel Waterloo, a combination hotel and casino. One evening she and several members of her family gambled at the casino. McKee was playing a penny slot machine called “Miss Kitty.” A person wins at the Miss Kitty game by lining up different combinations of symbols from left to right on the slot machine screen. The game includes a button entitled “Touch Game Rules” in the lower left-hand corner of the screen. Tapping this button displays the rules that govern the game and a chart describing potential winning combinations of symbols. These rules do not mention any additional bonus, jackpot, or prize available to a person playing the Miss Kitty game. The rules state “MALFUNCTION VOIDS ALL PAYS AND PLAYS.” A sign posted on the front of the machine reiterates “MALFUNCTION VOIDS ALL PAYS AND PLAYS.” McKee did not read the rules before she played the slot machine.

While playing the game, McKee won $1.85 based on how the symbols had lined up on the slot machine screen. However, at the same time a message appeared on the screen stating “Bonus Award $41797550.16.” The casino paid McKee $1.85 but refused to pay the alleged bonus, claiming it was an error and not part of the game. McKee sued the casino in district court to recover $41,797,550.16. The casino introduced evidence that the appearance of the bonus on the screen was an error in the computer system of the game. The casino made a motion for summary judgment, which was opposed by McKee. The district court held that the rules of the Miss Kitty game were an express contract between McKee and the casino. The court granted summary judgment to the casino. McKee appealed.

Issue

Was there a contract between the parties that provided for the payment of a bonus when playing the Miss Kitty slot machine?

Language of the Court

Gambling contracts are governed by traditional contract principles. We agree with the district court that the Miss Kitty rules of the game are the relevant contract here and that they form an express contract. Further, it is undisputed the rules of the Miss Kitty game did not provide for any kind of bonus. Hence, in our view, McKee had no contractual right to a bonus. Nor is it relevant that McKee failed to read the rules of the game before playing it. It is sufficient that those rules were readily accessible to her and she had an opportunity to read them. On the play in question, the alignment of the reels entitled McKee to a prize of $1.85, and the casino paid it to her, fulfilling its side of the contract.

Decision

The Supreme Court of Iowa affirmed the district court’s grant of summary judgment in favor of the casino."

Read Case 10.1 in your text.

A) Do you think the Court ruled correctly? Why or why not?

B) What does the term "a contract is a contract is a contract" mean and how does it relate to this case?

C) Identify two (2) other examples when people may not read rules or provisions of service that may affect them if there is a problem.

D) Pick an ethical principle that the casino followed by not paying the bonus.

Submit a 3-4 page written paper following the APA format, exclusive of the title and reference pages. The Abstract is not required or needed. Papers should be double spaced in Times New Roman font and 12 point size. The paper must cite at least one other validated (peer-reviewed) source independent of the textbook.

In this paper, please discuss the following case study. For you to complete this assignment you must:

• Explain your approach to the problem.
• Support your approach with references, and execute your approach.
• Provide an answer to the case study’s questions with a recommendation.

This case continues following the new project of the WePROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a very unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.

As we know from the prior case involving this company, more details of the project become apparent and with more precision and certainty.

The following are the final values to the data:

• The cost of the equipment will be $70,000 and this cost is incurred prior to any cash is received by the project.
• The expected annual cash revenue of the project will be $30,000.
• The expected annual cash outflows (expenses/costs) are estimated at being $11,000, excluding depreciation.
• Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment. The discount rate you are assuming is 6%.
• After 5 years the equipment will stop working and there will be no salvage value.

Requirements of the paper:

• Perform the final NPV calculations and provide a narrative on how you calculated the computations and why (justification of answer).
• Present your calculated answers in schedule format (a table) along with your narrative. Microsoft Excel is also recommended for calculating and creating a table (your schedule).
• Then provide a summary conclusion on whether you should continue to pursue this business opportunity.
• Research, using at least one other sources other than the textbook materials that support your calculations and conclusions.

Papers will be assessed on the following criteria:

• Provide the final, accurate NPV calculations.
• A narrative on how the NPVs were calculated. The narrative should include how the data relating to depreciation and its tax consequences affect the cash flow of the project. Include a table with your analysis to present your work.
• Provide a conclusion on whether this business opportunity should be pursued.