You started Max Inc., a seed stage web-oriented entertainment venture, with 10,000 shares. You do not expect to make a profit until year 4 when your net income is expected to be $4 million. An investor wants to invest $1.5 million in your venture. You and the investor agree that the required return on this investment is 40% and that the investor will exit at the end of year 4. Meanwhile, the common stock of TDC, a comparable firm, currently trades in the over the counter market at $10 per share. TDC’s net income for the most recent year was $300,000 and the firm has 150,000 shares of common stock outstanding. However, two years after this deal, it turns out that the venture needs an additional investment of $1 million. Another investor is willing to invest $1 million in your venture provided you give her 30% return. Calculate the percentage of ownership dilution suffered by the first-round investor after the second investment.                                                                                           

1- An MNC has an incentive to invest short-term funds in a foreign currency if investments denominated in the foreign currency have a ___(higher OR lower)     interest rate than investments denominated in the home currency of the MNC.

True or False: If a currency’s LIBOR rate rises, the money market interest rates denominated in that currency also rise.

• True
• False

2- True or False: Short-term loans of six months or less, extended by banks to MNCs in Europe, are called eurocredit loans.

• True
• False

3- The United States Congress passed the Sarbanes-Oxley (SOX) Act in 2002. This act required all firms, including foreign firms, to provide more comprehensive financial information in order to list their stock on US stock exchanges.

True or False: The high cost of SOX compliance leads some non-US firms to withdraw from US exchanges.

True

False

Some of your family members are having a discussion about politics. You try to run away, but unfortunately you can’t. Your cousin says, “Man, poor people are bums! They just want to be on Instagram all day, showing off expensive stuff they bought instead of going to work.” Your aunt responds by saying, “I don’t know. When I came to the United States, you could get a decent paying job, but now a lot of people are working, but they’re still poor. They’re not getting paid enough, and they have no benefits.”

a. Explain what theory of poverty your cousin believes. How does this theory explain the existence of poverty in our society? How does this theory propose to solve poverty?

b. What theory of poverty is your aunt expressing? How does this theory explain the existence of poverty in our society? How does this theory propose to solve poverty?

Information from the American Institute of Insurance indicates the mean amount of life insurance per household in the United States is $126,000. This distribution follows the normal distribution with a standard deviation of $40,000.

1. If we select a random sample of 64 households, what is the standard error of the mean? (Round your answer to the nearest whole number.)

2. What is the expected shape of the distribution of the sample mean?

3. What is the likelihood of selecting a sample with a mean of at least $130,000? (Round your z value to 2 decimal places and final answer to 4 decimal places.)

4. What is the likelihood of selecting a sample with a mean of more than $118,000? (Round your z value to 2 decimal places and final answer to 4 decimal places.)

5. Find the likelihood of selecting a sample with a mean of more than $118,000 but less than $130,000. (Round your z value to 2 decimal places and final answer to 4 decimal places.)

CA1.11 (LO 2, 4) (Models for Setting GAAP) Presented below are three models for setting GAAP.

1. The purely political approach, where national legislative action decrees GAAP.
2. The private, professional approach, where GAAP is set and enforced by private professional actions only.
3. The public/private mixed approach, where GAAP is basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies.

Instructions

1. Which of these three models best describes standard-setting in the United States? Provide justification for your answer.
2. Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting?
3. Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards.

A. ERISA. ERISA does not require that employers offer a pension plan. But if a company decides to have one, it is rigidly controlled by ERISA provisions. These provisions were designed to achieve two (2) goals. What are they?

B. Defined Contribution Plans. Why are defined-contribution pension plans gaining in popularity in the United States and defined benefit plans losing popularity?

C. Health Insurance. Name and describe the three general strategies available to benefits managers for controlling the rapidly escalating costs of health care. Identify which strategy your organization (or an organization with which you are familiar) has selected to strategically control health care costs. Explain why. Also share your view regarding whether the selected strategy was the best option for the organization.

D. Legally Required Benefits. Discuss the rationale for legally required benefits, varieties of legally required benefits, and the implications for strategic compensation.

Suppose that you flip a coin 11 times. What is the probability that you achieve at least 4 tails?

A sign on the pumps at a gas station encourages customers to have their oil checked, and claims that one out of 5 cars needs to have oil added. If this is true, what is the probability of each of the following:

A. One out of the next four cars needs oil.

Probability =

B. Two out of the next eight cars needs oil.

Probability =

C. 10 out of the next 40 cars needs oil.

Probability =

In the United States, voters who are neither Democrat nor Republican are called Independent. It is believed that 13% of voters are Independent. A survey asked 26 people to identify themselves as Democrat, Republican, or Independent.

A. What is the probability that none of the people are Independent?

Probability =

B. What is the probability that fewer than 5 are Independent?

Probability =

C. What is the probability that more than 2 people are Independent?

Probability =

Recently, mumps outbreaks have become more common, with many occurring among individuals 18-24 years of age living on college campuses. Two doses of the measles-mumps-rubella (MMR) vaccine are recommended for protection from mumps. Herd immunity refers to the proportion of individuals that must be immune to effectively prevent the spread of disease through a population. In order to prevent the spread of mumps, at least 96% of people in a community must have received two doses of the MMR vaccine.

a) Suppose that 94% of undergraduate students in the United States report having received two doses of the MMR vaccine. What is the probability that in one upperclassman House at MIT, enough students are vaccinated to achieve herd immunity? There are approximately 400 students in any house.

b) Calculate the probability that herd immunity is achieved in all 12 Houses.

c) Discuss the validity of the assumptions required to make the calculation in part i.

The Zagat Restaurant Survey provides food, decor, and service ratings for some of the top restaurants across the United States. For 21 restaurants located in a certain city, the average price of a dinner, including one drink and tip, was $48.60. You are leaving on a business trip to this city and will eat dinner at three of these restaurants. Your company will reimburse you for a maximum of $50 per dinner. Business associates familiar with these restaurants have told you that the meal cost at one-third of these restaurants will exceed $50. Suppose that you randomly select three of these restaurants for dinner. (Round your answers to four decimal places.)

(a.) What is the probability that none of the meals will exceed the cost covered by your company?

(b.) What is the probability that one of the meals will exceed the cost covered by your company?

(c.) What is the probability that two of the meals will exceed the cost covered by your company?

(d.) What is the probability that all three of the meals will exceed the cost covered by your company?