2. The European Union (EU) and United States (US) demand and supply equations for corn

are:
QDEU =70–2PEU QSEU =20+3PEUQDUS = 130 – 3PUS QSUS = 30 + PUS

where QD and QS represent the quantities demanded and supplied in both countries (in billions of tons) and P represents the Dollar price per ton of corn in each country.

f. How much corn is traded between the two regions. Draw graphs to represent the

market situation before and after trade.
Suppose now that the US limits its imports of corn to 14 billions of tons.

g. What will be the new equilibrium prices of corn in the European Union and US?
h. What are the new domestic production and consumption levels in each region? How

much corn is traded?

1. A financial institution has the following portfolio of options a stock:

In EXCEL file answer the questions below,

An option is available with a delta of 0.5, a gamma of 2, and a vega of 1.5.

(a) What position in the traded option and in the stock would make the portfolio both gamma neutral and delta neutral?

(b) What position in the traded option and in the stock would make the portfolio both vega neutral and delta neutral?

(c) Another option with a delta of 0.2, a gamma of 0.5, and a vega of 1 is available. How could the portfolio become delta, gamma, and vega neutral?

The Table below shows the production capacity per unit of input for two countries. E.g. if Country B spends 1 input on magnets, it will produce 50 magnets.

(5A) Imagine that both countries are initially not trading and have 10 inputs each. They split their inputs evenly in the production of both goods. Describe what the total gains from trade potentially are if the countries change their production patterns and begin trading. Ensure you describe a situation where there has been an unambiguous gain from trade.

(5B) Describe the maximum and minimum price that magnets will be traded for (price described in terms of pies).

(5C) Describe the maximum and minimum price that pies will be traded for (price described in terms of magnets).

Provide a response to the discussion below. (Responses are thought-provoking, clearly supported, and further build a positive contribution to the discussion.)

Threat of new entrants

The threat of new entrants in The Vitamin Shoppe’s industry could be considered low. It would be extremely difficult for a new retailer to enter the market with the number of brands, recognition, and credibility that The Vitamin Shoppe and its competitors, such as GNC, have. In order to maintain this, The Vitamin Shoppe should continue to introduce new and innovative products and business practices and maintain its credibility within its industry and with its customers.

Threat of substitute products or services

One increasing threat that affects the Vitamin Shoppe is the trend towards natural-occurring remedies such as healthy eating. James Russo, Senior Vice President for Global Consumer Insights at Nielson suggested that this trend has included consumers focusing on the use of food as medicine. This, in turn, increases the demand for natural and organic foods (Gagliardi, 2015). This trend in consumer behavior means that more people are looking towards healthy and natural foods to supplement their bodies with necessary vitamins and minerals and are relying less on medicines and vitamins to do so. Clearly, this is a threat that affects The Vitamin Shoppe. To combat this, The Vitamin Shoppe should continue to introduce new products and take interest in the wants and needs of its consumers. For example, I think they could release a new line of products that promote usages as a booster in addition to a healthy diet.

Bargaining power of customers

The bargaining power of customers is high for The Vitamin Shoppe. For one, substitute products are available as mentioned above. There is also a lot of significant competition in the industry, such as other vitamin/health & wellness stores, grocery stores, etc., which gives customers options and thus, more power. In addition, there is virtually no switching costs for customers. It would take no effort for a customer to switch from shopping at The Vitamin Shoppe to GNC, for example. One way The Vitamin Shoppe works towards combating this high consumer power through their Healthy Awards Club, their buyer-incentive program that is free to participate in and results in free products when enough money is spent. This gives customers a reason to choose and continue to do business with The Vitamin Shoppe versus its competitors.

Bargaining power of suppliers

The Vitamin Shoppe’s bargaining power of suppliers could be considered low. Their website shows hundreds and hundreds of product brands that the company has available for its customers to purchase. With this, it could be assumed that they could easily drop one brand for another without much negative impact, should the supplier prices become too high, for example. The company also hosts its own private label, The Vitamin Shoppe. In addition, the company has recently teamed up with RangeMe. RangeMe is a service platform that the retailer and supplier interaction. Essentially, it makes it easier for retailers to find the right suppliers for the right merchandise at the right time. RangeMe CEO Nicky Jones has said that “by providing access to an incredible array of suppliers, we want to help The Vitamin Shoppe further their dedication to consumers and enhance their journey as a leading health and wellness retailer” (“The Vitamin Shoppe,” 2017, para. 4).

Intensity of competitive rivalry

Currently, The Vitamin Shoppe has a lot of competition, making this rivalry very high. As we have learned, The Vitamin Shoppe sells its products both in stores and online. With this, it results in the company not only competing against other specialty businesses in its industry, but also supermarkets, drugstores, e-commerce-only sites, and more. This makes its competitors businesses such as specialty stores GNC and Vitamin World, grocery stores/supermarkets such as Meijer, Kroger, and Walmart, pharmacies such as Rite Aid and CVS, and e-commerce-only sites such as Amazon. The Vitamin Shoppe can continue to combat its rivals by releasing new and innovative products as well as maintaining low prices and high customer value.

Value Chain

The Vitamin Shoppe’s website states, “We promise that our customers' health, safety, and peace of mind will always be our top priority. We will continue to strive for the highest quality standards in the dietary supplements industry. Our goal is to exceed our customers' expectations in product quality, service, and price, and consistently deliver pure, high-quality dietary supplements you can trust” (“Brand Quality,” n.d., para. 8). It is clear that the company understands the importance that quality has to its customers and plays in its business practices. The Vitamin Shoppe’s work with RangeMe ensures that the company can streamline its practices to get the right products and merchandise on its shelves for its customers. As mentioned earlier, the company offers hundreds of brands for its customers to choose from, making it easy for anyone to find exactly what they’re looking for. The Vitamin Shoppe makes it easy for its customers to shop. It offers the Healthy Awards Club (as mentioned above) as well as the opportunity to shop both in-store and online. In-store, the staff includes a variety of employees who are passionate about the company’s culture of health and wellness. Online, customers are greeted with the opportunity to chat with a Health Enthusiast (The Vitamin Shoppe’s salesforce, as I discussed in last week’s session). This makes it easy for consumers who are browsing online (without the help a physical store’s employees offer) to get answers to questions and assistance with their shopping. The Vitamin Shoppe’s goal is to provide its customers with the tools necessary to maintain their health and wellness for a lifetime.

Michael Razza purchased a 500,000 square foot farm in Wyoming on June 1, 2005. At the time of purchase, the building had a Net Operating Income of $3,500,000. Mr Evans was able to obtain a loan with a 7% loan constant with a 30-year amortization schedule at the closing of the property. The Annual Debt Service (ADS) for this loan is $1,900,000.00. The loan has a maturity date of May 31, 2015. The loan does not contain a prepayment penalty.

1. What was the original amount of the loan at time of purchase?

2. Assume the original loan at purchase was 75% of the purchase price, how much equity did Michael put into the property at closing?

3. Assume that the loan has been in place for four (4) years, what is the loan balance at the end of Year 4?

You are working with a small sample of 2005 population census of China. You would like to study the income distribution of China.

1. Preparing your data in Stata. Download the dataset census2005_ps1.dta from Canvas
   • Constrain you working sample to adults age 18-65;
   • Drop observations with income marked as “99999”;
   • Calculate the share of individuals aged 18-65 with income equal to 0.
2. Using descriptive statistics, distribution histogram with normal-density plot, density curve to check whether or not the income in China is normally distributed. How about log income? Briefly interpret your results.
3. Suppose the log income in China is normally distributed with mean 6 and Std. Dev. 1
   • What is the probability that an adult aged 18-65 with a job has income of more than 1500?
4. You would like to compare the income information from census with statistics reported by the National Bureau of Statistics (NBS) at the province level. Cityvar.csv reports GDP and unemployment rate by province in 2005.
   • Load Cityvar.csv into Stata. Save it as a dta file to your local disk. (Hint: the command of importing non-dta files into Stata is import delimited "filename", clear)
   • Calculate the average income of individuals aged 18-65 (excluding zero income individuals) and the share of individuals with zero income at the province level. (Hint: you could use the collapse command in Stata. )

Sample code:

replace income=. If income==0 gen income_zero = 0

replace income_zero =1 if income==.

collapse (mean) income income_zero, by (province_code)

• Merge the collapsed census data with the converted file of cityvar.csv (type “help merge” in Stata for practices of merging in Stata). Draw a scatterplot of average income and GDP at the province level using (type “help twoway scatter” in Stata for the right syntax). Briefly interpret your results.
• Draw a scatterplot of census share of zero income and unemployment rate (unemployment_rate). Briefly interpret your results.

Deutsche Schnitzel, a producer of high quality German baked goods, adopted IFRS in 2005 with the rest of the European Union. Two years ago, DS replaced all of its machinery and decided to record it at fair value rather than historical cost. The purchase price of the machinery (in U.S. dollars) was $1,100,000. In addition, DS spent $75,000 in shipping and installation. Trial runs, including labor, materials, and applicable overhead, came to $50,000. DS assumes that the interest expense from their current loans for the new machinery was $25,000. Assume that DS uses straight line depreciation. The machinery has a 6 year useful life and a salvage value of $225,000. DS records a full year of depreciation in the year of purchase, regardless of when the purchased the asset.

a. Assuming that DS paid cash for the all costs associated with the purchase of the equipment, make the journal entry to record the historical cost of the new machinery.

b. At the end of that first year, the fair value of the machinery was $975,000. Ignoring taxes, make any necessary journal entries for the first year.

c. At the end of the next year, the fair value of the machinery was $900,000. Ignoring taxes, make any necessary journal entries for the second year.

In 2005, The Economist noted the increasing dominance of Toyota in automotive manufacturing, commenting that “[t]here is the world car industry, and then there is Toyota.” For fiscal year 2009, Toyota produced slightly over 7 million vehicles, with approximately 40 percent of those being produced outside of Japan. In that same period, Toyota sold almost 7.6 million vehicles, and 74.3 percent of the sales were overseas. As of June 2009, Toyota employed over 320,000 people throughout its globally dispersed parts manufacturing, vehicle assembly, and marketing operations.

Toyota’s strong corporate culture is the “glue” that holds these far-flung operations together and makes them part of a single entity. “Spend some time with Toyota people and ¼ you realize there is something different about them. The rest of the car industry raves about engines, gearboxes, acceleration, fuel economy, handling, ride quality and sexy design. Toyota’s people talk about The Toyota Way [italics added] and about customers.” Toyota’s customer focus is legendary. Says one Toyota executive, “[t]he Toyota culture is inside all of us. Toyota is a customer’s company. ¼ Everything is done to make ¼ [the customer’s] life better.”

The Toyota Way, the defining element of Toyota’s corporate culture, is embodied in the following fourteen principles:

“Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.”

“Create a continuous process flow to bring problems to the surface.”

“Use ‘pull’ systems to avoid overproduction.”

“Level out the workload (heijunka). (Work like the tortoise, not the hare.)”

“Build a culture of stopping to fix problems, to get quality right the first time.”

“Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.”

“Use visual control so no problems are hidden.”

“Use only reliable, thoroughly tested technology that serves your people and processes.”

“Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.”

“Develop exceptional people and teams who follow your company’s philosophy.”

“Respect your extended network of partners and suppliers by challenging them and helping them improve.”

“Go and see for yourself to thoroughly understand the situation (genchi genbutsu).”

“Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly (nemawashi).”

“Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen).”

The Toyota Production System (TPS), which puts The Toyota Way into practice, focuses on “making cars, making cars better, and teaching everyone how to make cars better. At its Olympian best, Toyota adds one more level: [i]t is always looking to improve the process by which it improves all the other processes.”

Toyota’s culture has served the company very well for many years. Indeed, competitors marvel at Toyota’s culture and its ongoing success. As one General Motors’ planner observed privately, “the only way to stop Toyota would be the business equivalent of germ warfare, finding a ‘poison pill’ or ‘social virus’ that could be infiltrated into the company to destroy its culture.”

Over the years, “Toyota has adapted well to changes facing the automotive industry by establishing sound processes and procedures. It has made continuous change and improvement the essence of its business philosophy: each year thousands of improvements are suggested by employees and many are implemented. ¼ It has built its success with products that are made according to the all-embracing Toyota Way [italics added]. In fact, so confident is Toyota of its quality and reliability record, that it allows rival companies to visit its factories all over the world.”

In recent years, however, some cracks seem to be developing in the armor of Toyota’s vaunted culture. An internal Toyota study compared the company’s products against its competitors’ products—component by component, car by car—and found Toyota’s products to be superior in just over half of the hundreds of components and vehicle systems. Toyota judged such quality performance to be unacceptably mediocre. In reference to the U.S. market, some business analysts say that Toyota’s rapid growth is one cause of the company’s growing quality-control problems. Charles Fishman, writing in Fast Company, says, “Toyota is far from infallible ¼ recalls for quality and safety problems have spiked dramatically [and are] evidence of the strain that rapid growth puts on even the best systems. But those quality issues have seized the attention of Toyota’s senior management. In the larger arena, when the strategy isn’t to build cars but to build cars better, you create perpetual competitive advantage.”

Toyota has long desired to become the Number One Car Company in the world. However, the pursuit of this ambitious goal has strained Toyota’s fabled production system as “a series of un-Toyota-like quality problems have begun to nibble away at the firm’s reputation as the world’s most admired manufacturer and as a byword for reliable vehicles.”

Given that Toyota makes nearly as many vehicles outside Japan as it does at home, the company has been challenged in effectively inculcating The Toyota Way into its foreign manufacturing operations. This has contributed to the quality problems that Toyota has experienced in its foreign operations. Katsuaki Watanabe, Toyota’s CEO, “thinks Toyota is losing its competitive edge as it expands around the world.” He frets that quality, the foundation of its U.S. success, is slipping. He grouses that Toyota’s factories and engineering practices aren’t efficient enough.

Will The Toyota Way enable this company to solve it quality problems—or will Toyota need to part from its Way?

This case was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.

Case Study Questions: Answer the following questions

Describe Toyota’s culture from the perspective of espoused values and enacted values.

Using the perspective of the functions of organizational culture, explain the impact of The Toyota Way.

Using the perspective of the effects of organizational culture, explain the impact of The Toyota Way.

What challenges does Toyota face as it attempts to maintain The Toyota Way while pursuing vigorous global expansion?

On July 1, 2005, J & J, Inc. issued 9% bonds in the face amount of $5,000,000, which mature on July 1, 2015. The bonds were issued for $4,695,000 to yield 10%, resulting in a bond discount of $305,000. J & J uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2007, J & J’s unamortized bond discount should be how much?

A study of more than 5000 bank robberies between 2005 and 2007 found that the average bank robbery lasted 4 minutes and 16 seconds and yielded about $20,000. The study also found that each additional minute that robbers spent in the bank increased their haul by about $2,000.

Explain how an economically rational bank robber should determine how many minutes to spend in the bank committing the robbery. Be sure to explain the principle that a rational bank robber would apply to this decision, and how that principle would be applied.