1. Draw the money market with the value of money on the vertical axis and the amount of money on the horizontal axis. For each event below, state the anticipated effect on the price level. (for each part, include a sketch of the shift either in money demand or money supply to support your answer)

a. the Federal Reserve conducts an open-market purchase of bonds from the public

b. consumer confidence is up, and so we see consumers buying more goods and services

c. the interest rate rises inducing households to hold more bonds

b. Draw the Aggregate Demand and Aggregate Supply model in long run equilibrium, with the price level on the vertical axis and real output on the horizontal axis. For each event below, state the effect on the price level and real output in the short run for the US economy. (for each part, include a sketch of the shift either in demand or supply to support your answer)

a. A recession in Canada lowers consumer spending in Canada, who typically holds a trade deficit with the US

b. A new federal tax code lowers the income tax for households

c. Oil prices rise

d. A net inflow of capital which leads to a higher level of capital stock in the domestic economy

Identify this current event highlighted in the news that relates to business strategy. You will submit a report that should include written analysis of the current event. In the report, you must discuss the current event, and then discuss how it affects the strategy of businesses that may be impacted by the current event.

Airbnb Hires New CFO From Amazon

Airbnb Inc. has hired another executive from Amazon.com Inc., this time naming Dave Stephenson as chief financial officer of the vacation-rental portal ahead of a potential initial public offering.

Mr. Stephenson will join the San Francisco-based company in early January, according to a company blog post, and will report to Airbnb Chief Executive Brian Chesky. He joins Airbnb after 17 years at Amazon, where he was most recently vice president and finance chief of the company’s world-wide consumer organization and responsible for Amazon’s global web sales.

Before that, he was vice president for Amazon’s international consumer business and oversaw the finances of various business units, including the North American retail operation, merchant services and Amazon Web Services.

Mr. Stephenson left Amazon for a brief stint to work as president and CFO of Big Fish Games Inc., a maker of computer and smartphone games, and served for nearly a decade at Procter & Gamble Co. on various finance and engineering roles, Airbnb said.

“Dave is one of the best financial operators in the world and there’s no one better prepared to serve as our CFO,” Mr. Chesky said in the blog post. “In the years ahead, Dave will be Airbnb’s quarterback for long-term growth, driving us to be even more efficient and leverage what makes Airbnb unique to create new businesses and continue to expand.”

Mr. Chesky has said Airbnb is preparing for an IPO in 2019, but the timing is uncertain. Airbnb was valued by investors at $31 billion as of a capital raise in March 2017.

In September, the company had requested the U.S. Securities and Exchange Commission change its rules that could potentially allow the home-sharing platform to give hosts stock in the company.

Mr. Stephenson will succeed Laurence Tosi, who stepped down from Airbnb in February to focus on his investment fund.

“I am thrilled to be joining and bringing my experience leading fast-growing businesses at scale to help Airbnb accelerate its already incredible growth,” Mr. Stephenson said in the blog post.

Airbnb earlier this year hired another executive from Amazon, Greg Greeley, who became president of its homes unit.

Compensation details for Mr. Stephenson weren’t immediately available. Airbnb didn’t immediately respond to a request for additional comment. Amazon declined to comment.

Corrections & Amplifications
Greg Greeley is the president of Airbnb’s homes unit. An earlier version of this article incorrectly named him Mr. Geeley. (Nov. 26)

Flight Plan Consulting, Inc.

Cost of Capital and Firm Valuation Project

The Company background

Bill Gibson began Flight Plan Consulting, Inc. (FPC) in 1990. The company offered very specialized consulting services to corporate flight departments, i.e., to those companies that have their own planes for purposes of executive transportation. This consultancy focused on the cost versus benefit considerations of the acquisition and use of corporate aircraft. Bill Gibson was ideally suited for this line of work; he was both a commercial pilot and had held an adjunct position as a finance professor in a university near his home. His company had its first and only public offering of stock in 1995; at that time revenue had reached $5 million, and the employee headcount was up to ten. In the twelve years since the company's inception, sales, earnings and the company's fine reputation have increased steadily. The company's financial information, and selected capital market and industry data and information are provided in Table 1.

A major contributor to the company's good fortunes is a particular area of concern taking place in many corporate flight departments around the United States. This concern is known as “fractional ownership” versus full ownership of corporate aircraft. Gibson, while not a corporate pilot, understood well the costs, benefits, concerns and industry dynamics of corporate flight departments and the companies that supplied the aircraft. This knowledge and breadth of understanding formed the basis for his consulting company.

Fractional ownership, in its simplest terms, is when several companies, usually three or four, share the ownership of a corporate aircraft. For example, a company that wishes to buy fractional ownership will buy or lease a 1/5 interest in an airplane. Such an arrangement would allow for approximately 160 hours per year of usage. The total cost would depend upon the type of aircraft chosen. The fractional purchaser or lessee would also have access to aircraft crew, maintenance and everything else needed to complete the operation of a corporate aircraft.

The interest in fractional ownership has several origins, the most prominent of which is the corporate “downsizing” and “rightsizing” of the decade of the 1990's. The closing of a corporate flight department could possibly mean a significant reduction in total corporate overhead expenses. Moreover, fractional ownership may be more “flexible” in the manner in which the services are customized for each individual fractional owner. A rule of thumb among consultants was if the aircraft will be needed between 100 and 350 hours per year, fractional ownership would likely be the best option. [1]

Within that environment, FPC has become a major source of consulting services for firms that are moving from having an in-house flight department to fractional ownership, or are considering corporate aircraft acquisition for the first time. The operations of FPC involved Gibson or one of his five consultants working with the client to determine the most efficient manner in which to acquire the use of a corporate aircraft. The consulting relationships were always quite involved and of long duration. A consultant's reputation, however, depended upon the word-of-mouth goodwill of each client.

In the last year or so, Gibson had considered expanding by acquisition. There were several smaller consultancies in the same line of business as FPC. Gibson, after extensive discussions with his investment bank, had decided to focus upon two firms. Either one of those two would permit him immediately to acquire clients in Canada or Germany. The more pronounced international reach was exactly what FPC's strategic plan called for. While the company had done business in both Canada and parts of Western Europe for several years, the companies being considered for acquisition had very positive reputations in their respective locations.

Cost of Capital

Gibson believed that long-term capital from external sources would be needed to finance the acquisition. He believed FPC's common stock to be valued fairly at present. He also believed that the company's excellent bond rating would make a debt issue feasible.

Although the company’s board of directors was made up of successful and knowledgeable people from a variety of backgrounds, not all of them were intimately familiar with finance; it was, therefore, essential to answer any questions they had with authority. The firm’s investment in any asset, including other companies, was a result of the strategic plan, which the board had helped to develop and had certainly approved. The cost of capital issue was a very necessary tool in the implementation of that plan. The economic worth of any investment made by FPC would be measured against the firm’s cost of money, its opportunity cost, its cost of capital; terms that Gibson knew were interchangeable. At this crucial stage of the company’s development, he wanted his board to be “conversational” with those terms.

Gibson decided that he had better provide some specific and detailed information to his board concerning the company's cost of capital and its relation to the valuation process. In order to move the process along, Gibson decided to hand over the task of preparing a draft of “Cost of Capital and Acquisition Plans Memo”, as it had come to be called, to Kay Biddle. Biddle was a summer intern employed in FPC's controller's office. She was an MBA student and planned to graduate at the end of the fall semester with a concentration in finance. To construct her memo Biddle wondered how she, in relatively few words, could best show the interrelationship among the firm’s capital structure, the yield on the firm’s debt, and the rate of return on the firm’s equity. All of that information would be a starting point for her explanation.

Acquisition Plans

The board, Gibson believed, also needed to consider the effect of the impending acquisition upon the firm’s sales and net income after-tax. The purpose of the acquisition is to increase sales and income and to diversify the firm in terms of its geographic market. That is a key element in the long-term success of specialized consulting firms in FPC’s line of business.

FPC identified two possible target companies to acquire:

Maple Aviation, a fast-growing company with clients in major Canadian cities, such as Vancouver, Toronto, and Montreal.

Das Flugzeug, an established consulting company providing services to clients in Berlin, Frankfurt, and Munich.

Gibson asked Biddle to calculate the firm values of the above-mentioned targets and include the details in the memorandum. FPC's financial staff had spent considerable time analyzing the target companies’ current and historical financial statements. The analysis helped to determine the level of free cash flows after possible acquisition. The future expected free cash flows are the net cash flows available to the firm's investors after all investment in fixed assets and working capital have been made. The expected free cash flows from Maple Aviation and Das Flugzeug are listed in Table 2 and Table 3, respectively. All values are in US dollars. The last step of firm value calculation is to discount the cash flows at the weighted average cost of capital. The valuation process would help FPC justify the fair costs to acquire the target companies.

Table 1: Selected Firm, Industry, and Capital Market Data

Table 2: Free Cash Flows (Thousands of US Dollars) of Maple Aviation

Table 3: Free Cash Flows (Thousands of Euros) of Das Flugzeug

Your task:

Suppose you are Kay Biddle and you will prepare the memorandum. You have to structure your memorandum around the following items:

Describe the company's core business and the market it serves.

Discuss the role of a corporate board of directors. To whom is the board responsible?

Why are capital market data and information useful when a firm is considering its cost of capital?

Calculate and present FPC's weighted average cost of capital.

Calculate and present the valuation of the two target companies to acquire.

Quantitatively discuss the comparison of the two targets.

In general, describe the effect upon the cost of capital of changes in capital market conditions such as an increase in interest rates, or a decline in stock prices.

Discuss how various factors may affect the cash flow estimates and FPC's project evaluation.

Note:

The format of the report is memorandum addressing to the board of directors. The body of your memorandum must not exceed 6 single-sided letter-size pages of typed 12-point-font double-spaced characters. You may include tables and figures in an appendix and reference them in the body of the report. If you make any assumptions or use information from external sources, state or cite them clearly. Writing and analysis should be performed by each student individually.

[1] The other options are, for less than 100 hours per year, use a charter service; for usage over 350 hours per year, operate an in-house flight department.

A proverb is a short sentence based on long experience"-- Miguel de Cervantes After reading the "Capability Maturity Model" and "CMMI Maturity Levels: Why Are They So Important" please discuss the following "Process Proverbs" from Paulk: • The "What-Not-How" Principle: The CMM does not mandate how the software process should be implemented; it describes what characteristics the software process should have. • Capability vs. Performance: The CMM focuses on building the process capability of an organization; the process performance of individual projects is correlated but not identical. • Organizational Improvement: The CMM is a model for organizational improvement. It is not tuned to improving individual projects or helping a project that is in trouble. • Comprehensiveness: The CMM does not address all the important factors that impact success. Excluded topics include capable people, systems engineering, and powerful tools. At a minimum please consider: The "truth" that the proverb is meant to illustrate. Whether or not (based on observation, experimentation, or personal opinion) the proverb is "true." In what way the proverb is or is not important to you as a student of programming and to the software development community in general. References: The New Dictionary of Cultural Literacy, Third Edition. Edited by E.D.Hirsch, Jr., Joseph F. Kett, and James Trefil. Copyright © 2002 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved.

Tioga Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.

The total budgeted material-handling cost is $71,720.  

Required:

1. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?
2. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one mirror would be what amount?
3. Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.
4. Under activity-based costing (ABC), the material-handling costs allocated to one mirror would be what amount? The cost driver for the material-handling activity is the number of material moves.

(For all requirements, Do not round your intermediate calculations.)

Tioga Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.

The total budgeted material-handling cost is $61,440.  

Required:

1. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?
2. Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one mirror would be what amount?
3. Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.
4. Under activity-based costing (ABC), the material-handling costs allocated to one mirror would be what amount? The cost driver for the material-handling activity is the number of material moves.

(For all requirements, Do not round your intermediate calculations.)

1. The Balance Sheet provides information about _____________, ____________ and ______________.
2. Cash paid this is owed to an individual reduces a _____________ account.
3. Supplies purchases increase a _____________ account and reduces a ____________ account.
4. Complete the following table:

5. Which of the following is not a Liability?

1. Money owed to bank
2. Cash borrowed from a friend
3. Money borrowed from bank to buy building
4. Money paid to purchase stock investments

6. Finish the equation: _______________ - ________________= Net Income.
7. Which of the following statements is false?
   1. When assets decrease, it is a credit.
   2. When liabilities decrease, it is a debit.
   3. When expenses increase it is a credit.
   4. When revenues decrease, it is a debit

8. Which of the following statements is true?

1. When you receive a loan from the bank, you increase an asset account.
2. When you pay cash to buy supplies, you increase a liability account.
3. When you purchase investments, you increase a revenue account.
4. When you pay back the loan from the bank, you increase a liability account.

9. Identify the following accounts as an Asset, Liability, Revenue or Expense

1. Salaries Payable
2. Fees earned from providing tax services
3. Advertising Bill
4. Long-term debt
5. Accrued Revenue
6. Prepaid Rent
7. Land
8. Supplies used during the month
1. Notes Receivable
10. Inventory
11. Cash
50. Vehicles
1000. Cash paid for a bill that is not yet due
14. Payment received from customer
15. Fees paid to bank

10. Which of the following is not a current asset?
    1. Cash
    2. Accounts payable
    3. Inventory
    4. Property, plant, and equipment
11. What is the entry on the balance sheet when a company borrows a bank loan of $1,000?
    1. $1,000 credit in current liabilities; $1,000 debit in current assets
    2. $1,000 credit in current liabilities; $1,000 debit in non-current assets
    3. $1,000 credit in non-current liabilities; $1,000 debit in current assets
    4. $1,000 credit in non-current liabilities; $1,000 debit in non-current assets
12. What happens to the balance sheet when a company makes sales of $500, of which $300 is paid in cash and $200 is sold on credit?
    1. $300 debit in cash; $200 debit in accounts receivable
    2. $300 credit in cash; $200 credit in accounts receivable
    3. $300 debit in cash; $200 debit in accounts payable
    4. $300 credit in cash; $200 credit in accounts payable

13. What happens to the balance sheet when a company pays salaries of $5,000?
    1. $5,000 credit in cash; $5,000 debit in accounts payable

2. $5,000 credit in cash; $5,000 debit in equity

3. $5,000 debit in cash; $5,000 credit in equity

4. $5,000 credit in cash; $5,000 debit in accounts receivable

14. If at the end of the month, the liabilities total $18,000, and equity totals $32,000, then what must be the total of the assets?  

1. $14,000
2. $18,000  
3. $32,000  
4. $50,000  
5. None of the above

15. The total assets and total liabilities of a firm are reported on which of the following?  

1. Income statement  
2. Balance sheet  
3. Statement of cash flows  
4. Statement of owner's equity  
5. None of the above

Exercise 2

The following data represent the mutual fund prices reported at the end of the week for selected 42 nationally sold funds.

10        17        15        18        22        19        10        17        18        25        11        13        35        28

27        29        39        31        35        33        22        24        28        35        45        50        47        38

41        31        21        11        49        38        35        25        33        42        27        15        28        34

1. Organize the data.
2. Present the data.

Exercise 3

Twenty MBA students have got the following marks out of 100 in three courses in the first semester.

1. Organize the above data in meaningful form.
2. Present the data.
3. Analyze and compare performance of students in three courses.

Exercise 4

A random sample of 8 MBA students from two sections of same batch are selected from of a B-School. The marks scored by these students are given below;

On the basis of sample statistic find out (show working),

1. Which section is more consistent?                                                           
2. Which section’s overall performance is better and why?

The incomes of a population of lawyers have a normal distribution with mean US$88,000 and standard deviation US$60,000. Forty-nine lawyers are selected at random from the above population to serve as a sample in a research project. Use the z for a sample mean formula and determine the probability that the one sample of 49 lawyers drawn at random will have a mean salary of US$90,000 or greater.

a. .03

b. .23

c. -.03

d.-.23

e. .5120

f..4880

g. .5910

h. .4090

What is a multinational firm? Please describe the theory of international trade that you can only consume what you can produce without trade and you can consume more than you produce with trade? What happens to the US dollar value of the UK pound if the US$/UK£ rises? The US dollar price of the euro rose from $1.15 to $1.30 - please explain using the demand and supply graph for a foreign currency and explain what is the main cause of changes in D and S.