1. In the following three situations, the market is initially in equilibrium. Explain the changes in either supply or demand that result from each event. After each event described below, does a surplus or shortage exist at the original equilibrium price? What will happen to the equilibrium price as a result? Demonstrate your answer graphically.
A. 2015 was a very good year for California wine-grape growers, who produced a lot of grapes.
B. After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms.
C. Consider the market for new snowblowers. After a heavy snowfall, many people want to buy second-hand snowblowers at the local tool shop.
2. Use a supply and demand model to explain how the following occurrence is possible.
Lobster prices usually fall during the summer peak lobster harvest season, despite the fact that people like to eat lobster during the summer more than at any other time of year.

Text exercise 39 page 638. This question uses the same data as exercise 2 above, and the data is in the accompanying spreadsheet.

(a) Estimate the regression in Excel and report the regression line.                                  [2 pts]

(b) Calculate a  95% confidence interval for the forecast of the average amount spent on entertainment at a city where the room rate is $89.                                                       [3 pts]

(b) Calculate a  90% confidence interval for the forecast of the idiosyncratic amount spent on entertainment at a city where the room rate is the average rate of $128.                        [3 pts]

(d) Use a t-test to test the hypothesis that there is a 1 to 1 relationship between entertainment expenses and hotel expenses. (ie test H0: β=1)                                                    

DATA:

Forecasting Exercise Every year the U of I hosts the Lionel Hampton Jazz Festival. Below you will find some issues that need to be forecast in order to provide the best experience possible to customers, develop effective plans, and deliver "profits" to businesses. How many schools (and students) will be attending? How many will attend Saturday night’s concert? (Lionel Hampton Jazz Festival Big Band) What will be room availability in Lewiston because of the festival? What should I charge for my hotel rooms during the busy weekend? Is there a threshold? How much more should Casa Lopez be ordering for Thursday, Friday, and Saturday? What will the economic impact be to the city of Moscow? Select two or three and write a double-spaced paper telling what you forecasted and how you came up with the forecast you made – discuss the mechanics of how you would develop your forecasts. The specific numbers are not as important as demonstrating a well thought out approach to your forecast.

The Marriott company (Marriott: Reducing Our Footprint) makes the following claim about its "sustainability strategy":

Our sustainability strategy supports business growth and reaches beyond the doors of our hotels to preserve and protect our planet’s natural resources. Marriott’s environmental goals are to:

• Further reduce energy and water consumption 20% by 2020 (Energy 20 percent per kWh/conditioned m2; Water 20 percent per occupied room (POR). Baseline: 2007);
• Empower our hotel development partners to build green hotels;
• Green our multi-billion dollar supply chain;
• Educate and inspire associates and guests to conserve and preserve;

Address environmental challenges through innovative conservation initiatives including rainforest protection and water conservation.

Find statements from two other companies that detail their environmental; policy/sustainability strategy. Summarize those statements. Critically evaluate the policies/strategies - Are they good policies/strategies? Will they truly help the environment?

For this assignment, you play the role of an marketing analyst for an online travel site called GlobalTrekTravel (GTT, a fictitious online business used for this course). GTT is focused on international travelers and provides online booking tools for airfare, ground transportation, hotel and sight-seeing tours, travel insurance, language support with translation services, passport and visa document preparation, and medical immunization recommendations. In sum, GTT addresses all needs of an international business or holiday travelers to have successful journeys. GTT’s marketing focuses on this value proposition: “We give you integrated travel services for all your International business and personal travel needs, saving time and frustration. We stay current to the world’s everchanging travel conditions, reducing your travel stressors.”

Your objective is to help them better understand their customers and find ways to use digital channels and data to serve their needs. They are seeking a customer journey analysis, that will allow them to take appropriate action.

The Marriott company (Marriott: Reducing Our Footprint) makes the following claim about its "sustainability strategy":

Our sustainability strategy supports business growth and reaches beyond the doors of our hotels to preserve and protect our planet’s natural resources. Marriott’s environmental goals are to:

• Further reduce energy and water consumption 20% by 2020 (Energy 20 percent per kWh/conditioned m2; Water 20 percent per occupied room (POR). Baseline: 2007);
• Empower our hotel development partners to build green hotels;
• Green our multi-billion dollar supply chain;
• Educate and inspire associates and guests to conserve and preserve;

Address environmental challenges through innovative conservation initiatives including rainforest protection and water conservation.

Find statements from two other companies that detail their environmental; policy/sustainability strategy. Summarize those statements. Critically evaluate the policies/strategies - Are they good policies/strategies? Will they truly help the environment?

As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%.
Year
₵

0
(100,000)

1
20,000

2
25,000

3
32,000

4
35,000

Using the CAPM approach, what is the cost of equity on this project?
[2 marks]
Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? [2 mark]
What will be the weighted average cost of capital (WACC)? [2 mark]
Using the WACC computed in (c), what will be the NPV of the investment? ` [3 marks]
Compute the IRR for the project? [3 marks]
What will be your overall advice concerning viability of the project?
[2 marks]

Mr. Norman and Mr. Foster are both investors looking to buy financial assets. Mr. Norman prefers assets with the lowest prices while Mr. Foster prefers assets on the financial market with higher prices. Each of them currently has GHC 1,000 to invest and needs your assistance to know which asset to buy to suit their preference. The following information provides details of investment options.
Asset A is a bond with a coupon rate of 10% and pays semi-annual coupons. The par value is GHC 1,000, and the bond has 5 years to maturity. The yield to maturity is 11%.
Asset B is a stock whose dividend is expected to increase by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. The last dividend was GHC 100 and the required return is 20%.
Which asset will Mr. Norman and Mr. Foster invest in? [8 marks]

In the 2020 accounting year, investors made a number observations in terms of certain decisions some corporations were taking:
(i) The board of directors of some manufacturing and services companies decided to pay stock dividends instead of cash dividends;
(ii) On the other hand, the board of directors of majority of companies within the ICT industry decided to pay special cash dividends;
(iii) It was also observed that some the management of some companies had decided to repurchase shares while others were engaging in stock splits.

What could be the reason for these three decisions and choice of dividend payments by the boards of these companies and what will be the effect of such decisions on the outstanding number of shares and the share prices of these companies? [8 marks]

As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%.

Year

₵

0

(100,000)

1

20,000

2

25,000

3

32,000

4

35,000

Using the CAPM approach, what is the cost of equity on this project?

[2 marks]

Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt?                        [2 mark]

What will be the weighted average cost of capital (WACC)?    [2 mark]

Using the WACC computed in (c), what will be the NPV of the investment?     `                            [3 marks]

Compute the IRR for the project?                     [3 marks]

What will be your overall advice concerning viability of the project?   

[2 marks]

Mr. Norman and Mr. Foster are both investors looking to buy financial assets. Mr. Norman prefers assets with the lowest prices while Mr. Foster prefers assets on the financial market with higher prices. Each of them currently has GHC 1,000 to invest and needs your assistance to know which asset to buy to suit their preference. The following information provides details of investment options.            

Asset A is a bond with a coupon rate of 10% and pays semi-annual coupons. The par value is GHC 1,000, and the bond has 5 years to maturity. The yield to maturity is 11%.

Asset B is a stock whose dividend is expected to increase by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. The last dividend was GHC 100 and the required return is 20%.   

Which asset will Mr. Norman and Mr. Foster invest in?        [8 marks]

In the 2020 accounting year, investors made a number observations in terms of certain decisions some corporations were taking:

(i) The board of directors of some manufacturing and services companies decided to pay stock dividends instead of cash dividends;

(ii) On the other hand, the board of directors of majority of companies within the ICT industry decided to pay special cash dividends;

(iii) It was also observed that some the management of some companies had decided to repurchase shares while others were engaging in stock splits.

What could be the reason for these three decisions and choice of dividend payments by the boards of these companies and what will be the effect of such decisions on the outstanding number of shares and the share prices of these companies?       

At a facility’s loading dock, delivery vehicles arrive randomly, starting at 8:00 AM, at a rate of 2.0 per hour. If the dock is occupied by another vehicle, the driver must park in a waiting area until the dock is clear; this occurs with probability 0.20, independent of the time of day or other variables. Identify the family and parameter(s) of each of the following random variables (for instance, “Bernoulli(0.5)”). If it is not one of our “famous” families indicate “other”; if the parameters cannot be determined indicate so.

(a) The time elapsed before the next vehicle arrives.

(b) The number of arrivals between 8:00 AM and 10:00 AM.

(c) The number of vehicles in the loading dock.

(d) Of the next 10 deliveries to arrive, the number than have to wait for the dock to clear.

(e) The number of vehicles in the waiting area.

(f) The number of deliveries made up to and including the first that has to wait for the dock to clear.

(g) The arrival time of the third delivery on a given day