24.

Oligopoly is a common form of big business in America. Automobiles, soft drinks, fast food franchises, cigarettes, beer, and cell phone services all fall into the category of oligopoly.
a. What are the characteristics of an oligopoly? List and explain the three most important characteristics.
b. Many oligopolies are successful in earning economic profit year after year. Identify and explain what characteristic of oligopoly is most responsible for the presence of long-run economic profits.
c. Many oligopolies sell differentiated products. List and explain three ways in which the firm may attempt to differentiate its product and explain why the firm would wish to differentiate its product.

You plan to visit one of your friends living in Colorado, America in three months. You expect to incur the total cost of US$20,000 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is RM_____/ US$ and the three-month forward rate is RM_____/ US$ (please refer to Table 1 below for your given rates). You can buy the three-month call option on US$ with the exercise rate of RM4.3/ US$ for the premium of RM1 per US$. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 3.2 percent per annum in Malaysia and 2 percent per annum in the United States.

1. Calculate your expected ringgit cost of buying US$20,000 if you choose to hedge via call option on US$.

2. Calculate the future ringgit cost of meeting this US$ obligation if you decide to hedge using a forward contract.

3. At what future spot exchange rate will you be indifferent between the forward and option market hedges?

4. Illustrate the future ringgit costs of meeting the US$ payable against the future spot exchange rate under both the options and forward market hedges.

TABLE1

The Superior Manufacturing Company of America wants to make two shipments from Raleigh, NC, to New York, NY. The first shipment weights 12,000 pounds and the second shipment weight 17,000 pounds. The carrier charges $10 per hundredweight (cwt) if the goods are shipped separately and the shipments arrive in two days. If the goods can be consolidated into one shipment, the cost would be $8 per cwt to ship them in one truckload but would cost $500 to consolidate the shipments at the carrier’s warehouse and it would take three days. Inquiries 1. Showing all work, calculate the total cost of both shipment options. 2. Which is the lowest cost? 3. Does the group believe sustainability should be a consideration? 4. In addition to cost, what other factors – not including sustainability, either – should be considered? Present and elaborate on at least two considerations. 5. Which approach would you select? Explain your rationale (the rationale of the team).

Rain Forest Inc. Imports fruit from Latin America and sells them in boxes to retailers in the U.S.

a) Today the company signed a contract with a major software company to purchase, customize, and implement an Enterprise Resource Planning (ERP) system. Rain Forest is taking a loan from a bank of $3 million, which is the value of the ERP contract. The bank offers an APR (annual percentage rate) of 4.3% for 120 monthly payments. How much Rain Forest has to pay per month for the loan taken to purchase the warehouse?

b) A competing bank heard that Rain Forest will take a loan and made an offer that is supposedly more advantageous for Rain Forest than the loan described in (a). The competing bank is offering a $3 million loan to be paid back in 125 monthly payments of $30 thousand each. Assuming that Rain Forest wants the loan with the lowest APR, which loan should they take?

c) The cost of each box of fruit is $4.35. Rain Forest sells each box for $4.89 to retailers. Retailers buy 45,000 boxes per month. Considering that the only relevant fixed expense is the payment made each month for the ERP contract described in (a), show total revenue, total variable cost, fixed expenses, and profit (or loss) per month. Is Rain Forest profitable? If not, would Rain Forest be profitable if it decided not to implement the ERP system?
Tip: be careful with the signs, especially if you are referencing a result from item (a)!

d) Considering the price in c), build a table that shows total revenue for several quantities of boxes. Your table should show revenues for quantities varying from 40,000 to 60,000 in steps of 2,000. The result should be a table with 2 columns (quantity and revenue), and 11 rows (one for each quantity).

e) Considering the cost and fixed expense in c), add a column to the table above that is (total variable cost + fixed expense with ERP).

f) Add a line chart with one line for total revenue, another line for (total var. cost + fixed expense with ERP), and quantity sold in the horizontal axis. Based on the chart, what is the quantity the company needs to sell to break-even? How would the break-even quantity change if the ERP system cost 20% less?

g) Considering the variable cost and fixed expense in c), build a table that shows profit (or loss) for several quantities of boxes and prices per box. Your table should show profits for quantities varying from 40,000 to 60,000 in steps of 2,000, and prices varying from $4.79 to $5.19 in steps of $0.05.

h) For a selling price of $4.89 per box, what is (approximately) the quantity of boxes that Rain Forest needs to sell to break-even? Is this quantity the same as the one you found in the chart? (It should.)

i) For a total quantity of 50,000 boxes per month, what price (approximately) does Rain Forest need to charge per box to make a profit of more than $3,600 per month?

Mary, a 33 year old Native America male to female transgender person, wants to look into services that you provide. She has not legally changed her name so her documents display her given male name Mark. She is new in transition, dresses in high heels and tight skirts. She produces facial hair (which is exposed). She looks to be very nervous, shy and does not look anyone in the eyes. Mary has been diagnosed HIV positive for three years and has just begun a relationship with Robert who is HIV negative.

How can the provider establish a sense of trust with the patient?

What can the provider do to gain a sense of Mary’s knowledge about HIV, how it is contracted, and how it is treated?

What social support, if any, should Mary be offered?

How can the provider fulfill his/her ethical responsibility to Mary and her partner(s)?

What are some other cultural competency issues that may impact Mary's retention into care and treatment?

Valuation: Stock Valuation

Before Regional Bank was bought by Bank of America, Tina Brown was considering the purchase of Regional Bank's common stock. Given Regional Bank's recent merger with the Southeastern powerhouse, Bank South, and talks of penetration into the Florida market via a takeover of Barnett Bank, Tina felt Regional Bank would be a solid "buy and hold" as it continued to increase its market share through aggressive growth by acquisition.

While Tina was convinced she wanted to own Regional Bank, with all the price volatility surrounding the recent speculations, she was not sure if the price was above or below the stock's intrinsic value. She decided to derive the price of Regional Bank's common stock by using the Gordon Growth Model (Constant Growth Model).

To use the Gordon Growth Model, Tina had to first calculate Regional Bank's required rate of return on their common stock. The risk free rate, as proxied by the yield on a three month Treasury Bill, was 6%. The return on the market, as proxied by the return on the Standard and Poor's 500 (S&P 500), was 10%. Nations Bank had a beta of 1.75.

Past dividend payments also had to be known. Tina was not sure how far back into the future she should go to retrieve the dividend payment information, so she arbitrarily stopped in 1987. Between 1987 and 1990, Regional Bank seemed to have very different payout amounts. Not fully understanding the reasons behind these differences, Tina decided to consider two periods for analysis: from 1987-1995 and from 1990-1995. The dividend information that Tina recovered is shown below in Table 1.

Table 1

Questions

1. Consider the first time period from 1987-1995. Use the Gordon Growth Model to determine the price of Nations Bank's common stock.
2. Consider the second time period from 1990-1995. Use the Gordon Growth Model to determine the price of Nations Bank's common stock.
3. The answers for questions 2 and 3 are very different. What does this indicate, in general, about the Gordon Growth Model? (Hint–The observed market price of Nations Bank's common stock is $70.25.)
4. What effect does the stock's required rate of return have on the calculation of its stock price when using the Gordon Growth Model?
5. If you felt that Nations Bank's last year dividend of $2.00 was going to be paid in that constant amount throughout the remainder of the company's life (i.e. zero growth), what would be the value of the stock today?
6. Based on your response to question 6, what is the relationship between the present value of a dividend paid one year from now, a dividend paid ten years from now and a dividend paid one hundred years from now?

In America, Suppose you want to test the hypothesis that higher income taxes make people work fewer hours per year on average. The tax rate is your independent variable and hours worked per year is your dependent variable and you want to use each individual country as an observation. Suppose you run your regression and find that people in countries with higher income taxes work more hours per year. What is a potential reason why that could happen? what is the problem in testing the original hypothesis in this way?

Bank of America has 14 million common shares outstanding with current price of $50 and book value of $18 a share and a beta of 1.88. They also have two bond issues outstanding. The first bond issue has book value of $100 million, coupon rate of 11% and currently sells at 125.678% of par. The second bond issue is a zero coupon bond with book value of $50 million and currently sells at 43%. Maturity of both bonds is 15 years. The tax rate is 45%. Market return is 8% and the T. bill rate is 3.5%. (step-by-step, pls)

1. What are capital structure weights on a book value basis?

2. What are capital structure weights on a market value basis?

3. What is the Weighted Average Cost of Capital (WACC)?