Sheila Goodman recently received her MBA from the Harvard Business School. She has joined the family business, Goodman Software Products Inc., as Vice-President of Finance. She believes in adjusting projects for risk. Her father is somewhat skeptical but agrees to go along with her. Her approach is somewhat different than the risk-adjusted discount rate approach, but achieves the same objective. She suggests that the inflows for each year of a project be adjusted downward for lack of certainty and then be discounted back at a risk-free rate. The theory is that the adjustment penalty makes the inflows the equivalent of riskless inflows, and therefore a risk-free rate is justified.

A table showing the possible coefficient of variation for an inflow and the associated adjustment factor is shown next:
  

Assume a $125,000 project provides the following inflows with the associated coefficients of variation for each year.
  

  
Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Fill in the table below: (Do not round intermediate calculations. Round your dollar answers to the nearest whole dollar.)

Year Adjustment Factor Adjusted Inflow

1

2

3

4

5

  
b-1. If the risk-free rate is 6 percent, compute the net present value of the adjusted inflows. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

  
b-2. Should this project be accepted?
  

Individual A just turned 30 years old, have just received your MBA, and have accepted your first job. He must decide how much money to put into its retirement plan. The plan works as follows: Every dollar in the plan earns 7% per year. You cannot make withdrawals until he retires on his sixty-fifth birthday. After that point, individual A can make withdrawals as he sees fit.

Individual A decides that he will plan to live to 100 and work until hi turns 65. He estimates that to live comfortably in retirement, he'll need $100,000 per year starting at the end of the first year of retirement and ending on his one-hundredth birthday.

Individual A will contribute the same amount to the plan at the end of every year that you work.

(a) How much does Individual A need to contribute each year to fund his retirement? The situation above is not very realistic because most retirement plans do not allow you to specify a fixed amount to contribute every year. Instead, you are required to specify a fixed percentage of your salary that you want to contribute. Assume that your starting salary is $75,000 per year and it will grow 2% per year until you retire.

(b) Assuming everything else stays the same as in the previous question, what percentage of his income does he need to contribute to the plan every year to fund the same retirement income?

Provide guidance on how a firm could mitigate the impact of currency exchange changes: EUR/AED (Euros / United Arab Emirates Dirham)

- How should the firm approach transaction, translation, and/or operating exposure in the UAE (United Arab Emirates)

Scenario:

You are operating a German manufacturing firm in the UAE.

A new aerated sewage lagoon is required in a small town in 2020. In 2015, one was built on a similar site in a nearby city for $3 million.The new lagoon is 75% larger, and its power sizing exponent is 0.90. The cost index for 2015 is 180, whereas the one in 2020 is 400. Estimate the cost of new lagoon in 2020.

Consider the following scenario: Teresa Ann Campo Pearson was born anencephalic due to a congenital birth defect. That is, she was born without a brain. As a result of her condition, Teresa would only live for a few days or a few weeks. Further, even if she lived longer, she would never develop preferences, ideas, likes, dislikes, or a personality, because she lacked the parts of the brain that facilitate those things. In fact, Teresa would never be conscious at all. She would never feel pleasure or pain, and would never even know that she existed. Babies are born every day in the United States that, for one reason or another, need organ transplants. Teresa's parents knew this, and wanted to donate her organs to other children who did have brains and who might very well live long, healthy lives if they could receive Teresa's heart, lungs, liver, and kidneys. However, if Teresa died naturally her organs would be unsuitable for transplant, and if her organs were harvested prior to her death then organ harvest itself would kill her. The physicians in charge of Teresa's care objected to the wish of her parents, and their decision to refrain from organ harvest was upheld in court. Use the concepts you have acquired and the skills you have developed in this course to argue for a course of action in this scenario. You should do this in a short essay. The central questions you should answer are: should the organs be harvested? If so, why? If not, why not? Your position should be supported with an ethical theory covered in this class. You should briefly explain the ethical theory and how it renders moral judgments in general. Then you should explain how the theory applies to this case. Next, explain how a rival theory might be used to render a different decision, and explain what is good about that rival position. However, also explain why you think your position is the better position to take on the issue. Lastly, include a concluding paragraph that summarizes your essay. Some additional questions you may find it useful to answer (or at least to consider) are: What are the central ethical dimensions of this case? Who can be harmed or helped in this scenario? Is this case a moral dilemma, and if so, why? What is the slippery slope, and how does it figure into this case, if at all? This test assesses your knowledge from the entire course, and you can use no more space to answer the question than is provided below. This means you must focus only on relevant information and avoid all extraneous material.

1. The Graduate Management Admission Test (GMAT) is a test required for admission into many masters of business administration (MBA) programs. Total scores on the GMAT are normally distributed and historically had a population standard deviation of 113. The Graduate Management Admission Council (GMAC), who administers the test, claims that the mean total score is 529. Suppose a random sample of 8 students took the test and their scores are given below: 699, 560, 414, 570, 521, 663, 727, 413

a. Find a point estimate of the population mean.

b. Construct a 95% confidence interval for the true mean score for the population.

c. Does this interval contain the value reported by GMAC?

d. How many students should be surveyed to estimate the mean score within 25 points with 99% confidence?

Old World Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every other month (which is 6 times per year). A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, what is the extra total cost of the current policy compared with the total cost of the optimal policy? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Ordering cost = $10 per order

Carrying cost = 20% of purchase price

Purchase price = $15 per unit

Total sales for year = 1,000 units

Safety stock = 0

4. Suppose the market demand and supply functions are QD = 180 – 1.5P and QS = 3.5P + 40. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.

a. Determine the equilibrium price and quantity in this market.

b. You’ve researched and found that most firms in the market currently experience costs such that TC = 15 + 45Q – 10Q2 + 1.5Q3. Determine whether or not you should enter this market. Use graphs to support your answer.

c. Due to unforeseen delays, you don’t enter the market. However, a year later the market supply has changed to QS = 3.5P + 10. Are you surprised at this shift in supply?

d. Given the new supply conditions, determine whether or not you should enter the market.

Topic: Productivity cost and contingent market valuation.

Suppose the faith-based organization has three leaders: - a 52 year old, African American male physician in private practice who also holds a PhD; - a 29 year old Native American female lawyer also holds and MBA and who works for a large firm that specializes in medical malpractice claims; and - a 38 year old, Caucasian male with an MA in art history who works as cook at a local restaurant.

Suppose that each of them uses their free time to be a group leader at the faith- based organization. Each person spends three hours a week as a group leader.

Question: How might a researcher following a more traditional human capital approach put a value on each person’s time?

This assignment is an individual-specific assessment of the industry in which you currently work or of the industry in which you intend to work after completing your MBA. You should discussion the sources of the value created within your particular industry.  Your brief document should address the following issues:

1. Brief description of your current or intended industry
2. Evaluation of the unique value created by your firm (for its customers) relative to all of its competition.  In other words, what makes your firm special for its customers.  The value may be derived from the quality of the product (relative to others on the market), customer service, overall purchase experience, or a combination of these and other factors.
3. Concluding discussion that addresses how the factors that influence value created in this industry may change over the next five years.