Case Study - Cholera A 25 year old woman is brought into a clinic in Bangladesh during the monsoon season. She is almost comatose, her pulse is weak and she is experiencing tachycardia. She has severe diarrhea, and is producing watery stool at a rate of 950 ml/hr. Her skin appears shriveled, and when a fold of skin is pinched it remains so for several minutes. Microscopic examination of the patient’s stool reveals the presence of a large number of Vibrio cholerae bacteria. The patient cannot drink, so intravenous isotonic NaCl is administered. When the patient is conscious, she is given an oral rehydration solution to drink. It contains NaCl, KCl, NaHCO3 and glucose. After 5 days she is sufficiently recovered to leave the hospital.

1. How did she most likely encounter the bacteria?

2. Why does she exhibit weak pulse and tachycardia? Why is she almost comatose?

3. How did the cholera toxin enter the cells and how did it affect intracellular signal transduction pathways and membrane transport.

4. How do intravenous fluids immediately improve the patient’s condition? Why isotonic NaCl?

5. What is the rationale for the ingredients in the oral rehydration solution?

6. Why does the patient recover in 5 days with this treatment and without antibiotics?

A corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $4 million as a result of an asset expansion presently being undertaken. Fixed assets total $3 million, and the firm plans to maintain a 50% debt-to-assets ratio. The corp's interest rate is currently 10% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 10% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy		__%
   Moderate policy		__%
   Relaxed policy		__%

2. 
   
3. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
   1. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
   2. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
   3. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
   4. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
   5. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.

The following data set provides information on the lottery sales, proceeds, and prizes by year in Iowa.

FY

Sales

Proceeds

Prizes

1992

$166,311,122

$45,678,558

$92,939,035

1993

$207,192,724

$56,092,638

$116,820,274

1994

$206,941,796

$56,654,308

$116,502,450

1995

$207,648,303

$58,159,175

$112,563,375

1996

$190,004,182

$51,337,907

$102,820,278

1997

$173,655,030

$43,282,909

$96,897,120

1998

$173,876,206

$42,947,928

$96,374,445

1999

$184,065,581

$45,782,809

$101,981,094

2000

$178,205,366

$44,769,519

$98,392,253

2001

$174,943,317

$44,250,798

$96,712,105

2002

$181,305,805

$48,165,186

$99,996,233

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Create a graph using the sales and year. What approximate range of sales would you expect for the year 2017?

Select the correct answer below:

Between 250 and 300 million dollars

Between 300 and 375 million dollars

Between 375 and 400 million dollars

Between 500 and 550 million dollars

Consider an investment that pays $39.66 in year 1, and then stabilizes and pays $4.73 every year forever after that (the first cash flow is in year 2) This firm does not intend to grow and has an interest rate (required rate of return) of 7%.  What is the present value of this investment opportunity? Give your answer to two decimals.

Consider a one year American put option on 100 ounces of gold with a strike of $2300 per ounce. The spot price per ounce of gold is $2300 and the annual financing rate is 7% on a continuously compounded basis. Finally, gold annual volatility is 15%. U= 1.112, D=0.8994, U= 0.6411. In answering the questions below use a binomial tree with two steps.

A. Value the option at time 0 using the binomial tree.

B. How would you hedge a long position in the put option at time 0 with a portfolio composed of a position in gold, and a cash borrowing or lending position?

A bank makes a 10-year loan of $100,000 at an interest rate of 12%. What are the monthly payments. What is the balance at the end of year 4?

An investor expects to receive $2,000 each year for the next five years, with the first payment beginning at the end of the year. What is the present value of the these payments if the interest rate is expected to be 5% for years 1-3 and 8% thereafter?

Presented below are the balance sheets of Trout Corporation as of December 31, Year 1 and Year 2, and the income statement for the year ended December 31, Year 2. The statement of retained earnings for the year ended December 31, Year 2 is on the next page. All dollars are in thousands.

Trout Corporation

Balance Sheets

December 31, Year 1 and Year 2

                          Assets                                            Year 1                  Year 2

Cash                                                                                       $   85                        $ 127

Accounts receivable                                                                          245                           253

Less: Allowance for doubtful accounts                                (9)                             (11)

Prepaid insurance                                                                    15                              9

Inventory                                                                              225                          234

Long-term investment                                                            65                              42

Land                                                                                          160                            160

Buildings and equipment                                                     250                              300

Less: Accumulated depreciation                                         (75)                          (100)

Trademark                                                                                 25                              22

Total Assets                                                                      $ 986                          $1,036

Liabilities & Stockholders’ Equity

Accounts payable                                                                $ 50                           $   36

Salaries payable                                                                          9                                    6

Deferred tax liability                                                               15                                18

Lease liability                                                                          --                                  75

Bonds Payable                                                                        275                              125

Less: Discount                                                                       (26)                               (24)

Common Stock                                                                       250                              280

Paid-In Capital –in excess of par                                          75                                  70

Preferred Stock                                                                          -                                    105

Retained Earnings                                                               338                                345

Total Liabilities & Stockholders’ Equity                 $   986                         $ 1,036

Trout Corporation

Income Statement

For the Year Ended December 31, Year 2

Net sales revenue                                                                                                   $ 380

Investment revenue                                                                                                     12

Operating Expenses:

Cost of Goods                                                          $ 150

Salaries expense                                                            58

Depreciation expense                                                   35

Trademark amortization                                                 3

Bad debts expense                                                          8

Insurance expense                                                          20

Bond interest expense                                                 45             319

Operating Income                                                                                                    $ 73

Other Income (Expense):

Loss on building fir                                                  $(27)

Gain on sale of investments                                          4                (23)

Pre-Tax Income from Continuing Operations                                                    $ 50

Less: Income Tax Expense:                                                                                     25

Net Income                                                                                                               $ 25

Additional Information:

Shareholders were paid cash dividends of $18 million.

A building that originally cost $40 million, and which was one-fourth depreciated, was destroyed by fire. Some undamaged parts were sold for $3 million.

Investment revenue includes Trout Corporation's $7 million share of the net income of Bass Corporation, an equity method investee.

$30 million par value of common stock was sold for $60 million, and $70 million of preferred stock was sold at par.

A long-term investment in bonds, originally purchased for $30 million, was sold for $34 million.

Pretax accounting income exceeded taxable income causing the deferred income tax liability to increase by $3 million.

The right to use a building was acquired with a seven-year lease agreement; present value of lease payments, $90 million. Annual lease payments of $15 million are paid at January 1^st of each year starting in Year 2.

$150 million of bonds were retired at maturity.

Required:

Use the EXCEL worksheet template provided. There are three tabs-

Direct Method Statement of Cash Flows (SCF)

Show your work

Cash flows from Operating Activities – CFOs Indirect Method

The mean number of sick days an employee takes per year is believed to be about 10. Members of a personnel department do not believe this figure. They randomly survey 8 employees. The number of sick days they took for the past year are as follows: 10; 6; 14; 4; 10; 9; 8; 9. Let X = the number of sick days they took for the past year. Should the personnel team believe that the mean number is about 10? Conduct a hypothesis test at the 5% level.

Construct a 95% confidence interval for the true mean. Sketch the graph of the situation. Label the point estimate and the lower and upper bounds of the confidence interval. (Round your answers to three decimal places.)

The net income reported on the income statement for the current year was $437,000. Depreciation recorded on store equipment for the year amounted to $17,400. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

Required: