RAK, Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes, EBIT, are projected to be $36,000 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 25 percent lower. RAK is considering a $95,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 6,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0. a-1 Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) ROE Recession % Normal % Expansion % a-2 Calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts 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.) % change in ROE Recession % Expansion % Assume the firm goes through with the proposed recapitalization. b-1 Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) ROE Recession % Normal % Expansion % b-2 Calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts 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.) % change in ROE Recession % Expansion % Assume the firm has a tax rate of 35 percent. c-1 Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) ROE Recession % Normal % Expansion % c-2 Calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts 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.) % change in ROE Recession % Expansion % c-3 Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) ROE Recession % Normal % Expansion % c-4 Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) % change in ROE Recession % Expansion %

1. A national newspaper reported that the state with the longest mean life span is Hawaii, where the population mean life span is 77 years. A random sample of 20 obituary notices in the Honolulu Advertizer gave the following information about life span (in years) of Honolulu residents.

(i) Use a calculator with sample mean and standard deviation keys to find x and s. (Round your answers to two decimal places.)

(ii) Assuming that life span in Honolulu is approximately normally distributed, does this information indicate that the population mean life span for Honolulu residents is less than 77 years? Use a 5% level of significance.

(a) What is the level of significance?
  

State the null and alternate hypotheses.

H₀: μ < 77 yr; H₁:  μ = 77 y

rH₀: μ = 77 yr; H₁:  μ > 77 yr    

H₀: μ = 77 yr; H₁:  μ ≠ 77 yr

H₀: μ = 77 yr; H₁:  μ < 77 yr

H₀: μ > 77 yr; H₁:  μ = 77 yr

(b) What sampling distribution will you use? Explain the rationale for your choice of sampling distribution.

The Student's t, since we assume that x has a normal distribution and σ is unknown.The Student's t, since we assume that x has a normal distribution and σ is known.     The standard normal, since we assume that x has a normal distribution and σ is known.The standard normal, since we assume that x has a normal distribution and σ is unknown.

What is the value of the sample test statistic? (Round your answer to three decimal places.)
  

(c) Find the P-value. (Round your answer to four decimal places.)

2. The Student's t distribution table gives critical values for the Student's t distribution. Use an appropriate d.f. as the row header. For a right-tailed test, the column header is the value of α found in the one-tail area row. For a left-tailed test, the column header is the value of α found in the one-tail area row, but you must change the sign of the critical value t to −t. For a two-tailed test, the column header is the value of α from the two-tail area row. The critical values are the ±tvalues shown.

Let x be a random variable that represents the pH of arterial plasma (i.e., acidity of the blood). For healthy adults, the mean of the x distribution is μ = 7.4†. A new drug for arthritis has been developed. However, it is thought that this drug may change blood pH. A random sample of 36 patients with arthritis took the drug for 3 months. Blood tests showed that x = 8.0 with sample standard deviation s = 1.7. Use a 5% level of significance to test the claim that the drug has changed (either way) the mean pH level of the blood. Solve the problem using the critical region method of testing (i.e., traditional method). (Round your answers to three decimal places.)

State your conclusion ion the context of the application.

Fail to reject the null hypothesis, there is sufficient evidence that the drug has changed the mean pH level.

Fail to reject the null hypothesis, there is insufficient evidence that the drug has changed the mean pH level.     

Reject the null hypothesis, there is insufficient evidence that the drug has changed the mean pH level.

Reject the null hypothesis, there is sufficient evidence that the drug has changed the mean pH level.

Compare your conclusion with the conclusion obtained by using the P-value method. Are they the same?

We reject the null hypothesis using the traditional method, but fail to reject using the P-value method.

The conclusions obtained by using both methods are the same.    

We reject the null hypothesis using the P-value method, but fail to reject using the traditional method.

Economist and Nobel Laureate Joseph E. Stiglitz argues that the IMF has failed its mission to secure global economic stability. He identifies the reasons for this failure with changes in the IMF’s mission and economic policies. In his role as Senior Vice President and Chief Economist at the World Bank in the late 1990s, Stiglitz was privy to the policies and failures of the IMF. In his book, Globalization and Its Discontents, Stiglitz lays out an argument for why the IMF has failed in its mission to ensure global economic stability. Stiglitz argues that the IMF’s policies not only do not work, but often make matters worse for the countries in crisis. He highlights several problematic policies:

Capital market liberalization. The IMF pressures countries that petition for IMF loans to open their markets to outside investment capital. Rather than help matters, this approach often makes matters worse as it destabilizes the economy of the country as well as the global economy. Investors may invest huge sums in a country only to pull those investments at a moment’s notice, causing acute economic crises.

Latin America as the template. Stiglitz says that many of the the ideas of the “Washington Consensus” were based on the experience with Latin America. The economic growth in these countries had not been sustained, governments had let budgets run out of control, and loose monetary policy had led to rampant inflation. The belief of the Washington Consensus was that this had happened as a result of excessive government intervention in the economy. So, if government intervention was the problem, then government intervention should be limited. The Washington Consensus pushed for policies such as capital market liberalization. Stiglitz notes that even if this approach was appropriate for some Latin American countries, it did not make sense to apply this policy blindly to other countries in very different situations where this kind of policy might make matters much worse.

Insensitivity to strength of local markets. Stiglitz says that the IMF policy forcing rapid trade liberalization has not only not worked, but does not follow lessons learned from history. He notes the cases of the U.S. and Japan. Both countries had trade protection policies in place until their industries were strong enough to compete in a global market. However, IMF policies forcing trade liberalization on a developing country where industries are not strong enough can actually cause more harm. Local industries could not compete, and rising interest rates made job creation virtually impossible. Says Stiglitz, “Liberalization has, thus, too often, not been followed by the promised growth, but my increased misery.”

Taxation without Representation. Stiglitz notes that even though the IMF is a public institution, funded by money from taxpayers around the world, it is not held accountable to the interests of these taxpayers. He identifies the problem of governance as one of the prime “underlying factors” for problems with the IMF.   (Center on Law & Globalization)

Related articles about IMF/Work Bank/Globalization by Joseph Stiglitz

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Identify a criticism made by Joseph Stiglitz in regards to the IMF, World Bank, or globalization. In your response, provide the following:

Summarize Stiglitz's criticism and provide a citation to the article you selected (include website address if applicable)

Using two or more academic sources, dispute or support Stiglitz's criticism (provide full citations to sources)

Determine the solutions to each of the following independent cases: (a.) Collings College has annual fixed operating costs of $12,500,000 and variable operating costs of $1,000 per student. Tuition is $8,000 per student for the coming academic year, with a projected enrollment of 1,500 students. Expected revenues from endowments and federal and state grants total $250,000. Determine the amount the college must obtain from other sources. $Answer

(b.) The Collings College Student Association is planning a fall concert. Expected costs (renting a hall, hiring a band, etc.) are $30,000. Assuming 3,000 people attend the concert, determine the break-even price per ticket. How much will the association lose if this price is charged and only 2,700 tickets are sold? (Do not use a negative sign with your answer.) $Answer

(c.) City Hospital has a contract with the city to provide indigent health care on an outpatient basis for $25 per visit. The patient will pay $5 of this amount, with the city paying the balance ($20). Determine the amount the city will pay if the hospital has 10,000 patient visits. $Answer

(d.) A civic organization is engaged in a fund-raising program. On Civic Sunday, it will sell newspapers at $1.25 each. The organization will pay $0.75 for each newspaper. Costs of the necessary permits, signs, and so forth are $500. Determine the amount the organization will raise if it sells 5,000 newspapers. $Answer

(e.) Christmas for the Needy is a civic organization that provides Christmas presents to disadvantaged children. The annual costs of this activity are $5,000, plus $10 per present. Determine the number of presents the organization can provide with $20,000. Answer presents