For ten years, Illinois Tool Works (ITW) has followed an acquisition strategy where it focused on growing from 800 to 1,000 businesses, each of which sought to follow an 80/20 rule where 80% of revenues business came from 20% of its products or customers. In support of this strategy, ITW sent hundreds of managers for training to sharpen their negotiating and deal making skills. As a result, ITW bought 201 companies between 2004 and 2008. Indeed, new acquired companies added $1 billion a year to annual revenues totaling nearly $18 billion.

Now, however, company leaders believe they’ve focused too much on acquisition. Former CEO David Speer said, “I can buy a lot of companies and fix them, but are they something I want to own four or five years from now?” So ITW is switching to a divestiture strategy aimed at making the company stronger through subtraction rather than addition. Divesting, or selling companies or their parts, is often done to get rid of business units that no longer fit strategic plans. The goal is to raise cash, streamline operations, and focus on the remaining core businesses. Research ITW’s divesting strategy, summarize it, and explain its goals and tactics. Find out the latest developments from the last few years. Do you think the divesting strategy will work?

42–3. Insider Trading.

Scott Ginsburg was chief executive officer (CEO) of Evergreen Media

Corp., which owned and operated radio stations. In 1996, Evergreen became interested in

acquiring EZ Communications, Inc., which also owned radio stations. To initiate negotiations,

Ginsburg met with EZ’s CEO, Alan Box, on Friday, July 12. Two days later, Scott phoned his

brother Mark, who, on Monday, bought 3,800 shares of EZ stock. Mark discussed the deal with

their father Jordan, who bought 20,000 EZ shares on Thursday. On July 25, the day before the

EZ bid was due, Scott phoned his parents’ home, and Mark bought another 3,200 EZ shares.

The same routine was followed over the next few days, with Scott periodically phoning Mark or

Jordan, both of whom continued to buy EZ shares. Evergreen’s bid was refused, but on August

5, EZ announced its merger with another company. The price of EZ stock rose 30 percent,

increasing the value of Mark and Jordan’s shares by $664,024 and $412,875, respectively. The

Securities and Exchange Commission (SEC) filed a civil suit in a federal district court against

Scott. What was the most likely allegation? What is required to impose sanctions for this

offense? Should the court hold Scott liable? Why or why not? [

SEC v. Ginsburg,

362 F.3d 1292

(11th Cir. 2004)]

Castle, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest and taxes, EBIT, are projected to be $26,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 20 percent lower. The firm is considering a debt issue of $120,000 with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 11,000 shares outstanding. The firm has a tax rate 35 percent. Assume the stock price remains constant. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Recession $ 9.45 9.45 Incorrect Normal $ 11.82 11.82 Incorrect Expansion $ 13.59 13.59 Incorrect a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to the nearest whole number, e.g., 32.) Percentage changes in EPS Recession -20 -20 Correct % Expansion 15 15 Correct % b-1. Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Recession $ 11.20 11.20 Incorrect Normal $ 16.40 16.40 Incorrect Expansion $ 20.30 20.30 Incorrect b-2. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage changes in EPS Recession -31.71 -31.71 Correct % Expansion 23.78 23.78 Correct

Question 19 (1 point) Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara’s after-tax real rate of interest Question 19 options: will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. Question 20 (1 point) When inflation falls, people Question 20 options: make less frequent trips to the bank and firms make less frequent price changes. make less frequent trips to the bank while firms make more frequent price changes. make more frequent trips to the bank while firms make less frequent price changes. make more frequent trips to the bank and firms make more frequent price changes. Question 21 (1 point) Shoeleather costs arise when higher inflation rates induce people to Question 21 options: spend more time looking for bargains. spend less time looking for bargains. hold more money. hold less money. Question 22 (1 point) Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn’s capital gain? Question 22 options: $50 $75 $100 $200

Please show your work.

Liquidity Performance Analysis

1. Do a Cahs Flow Liquidity Analysis.

Analyze Trends in cash flow from operations from the indirect cash flow statement, Changes in the cash balance, Changes in the days cash conversion cycle, Changes in inventory days, Accounts receivables days, & Accounts payable days - to - analyze the reasons for any changes in the cash conversion cycle.

2. Calculate the growth rate for revenues over the 2 years and the sustainable growth rate, and compare them.

3. Discuss what these trends reveal about the firm's liquidity from a cash flow perspective.

Case 1 – Cost-Volume-Profit Analysis (Assignment 1 – 20% of final grade) Janet Jennings is the general manager for Mercashoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the existing fixed costs. In addition, Janet is proposing a 5% price decrease ($40 to $38) that will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Janet’s ideas but concerned about the effects theses changes will have on the break-even point and the margin of safety. Information provided: A. Rental expenses for the store: $5,000 per month. B. Janet has a salary assigned of $60,000 per year. C. The store has a sales manager who earns $45,000 per year. D. There are three salesclerks who have a salary assigned of $25,000 each per year. E. Social security expenses for each the employees represent 30% of their salary. F. Utilities expense: $600 per month. Instructions: 1. Compute the current break-even point in units and compare it to the break-even point in units if Janet’s ideas are implemented. 2. Compute the contribution margin ratio under current operations and after Janet’s changes are introduced. (Round to the nearest full percent). 3. Compute the margin of safety under the two proposals. 4. What is the operating income under each scenario? 5. Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after Janet’s changes are introduced. 6. Prepare a Cost-Volume-Profit graph under the two scenarios. 7. Prepare a report explaining and justifying whether Janet’s changes should be adopted or not and provide suggestions supported by the information provided above. Show your work in Word of Excel

Risk and Rates of Return: Security Market Line Risk and Rates of Return: Security Market Line The security market line (SML) is an equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities. The SML equation is given below: ​ If a stock's expected return plots on or above the SML, then the stock's return is a)insufficient/sufficient? to compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is b)insufficient/sufficient? to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses.

Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): rRF = 5%; rM = 7%; RPM = 2%, and beta = 1.2

What is WCE's required rate of return? Round your answer to 2 decimal places. Do not round intermediate calculations. %

If inflation increases by 2% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. % Assume now that there is no change in inflation, but risk aversion increases by 1%.

What is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

If inflation increases by 2% and risk aversion increases by 1%, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %