1.

The average price of a gallon of gasoline (regular unleaded) in 1976 was $0.64. In 1998 it was $1.06. The CPI factor in 1976 is 56.9 and the CPI factor in 1998 is 163.0.   Convert the 1976 price to constant 1998 dollars. Was gas more expensive in 1976 or in 1998? Choose two correct answers.

Question 3 options:

	Gas was more expensive in 1998.
	Gas was more expensive in 1976.
	The 1976 price in 1998 constant dollars is  $1.83.
	The 1976 price in 1998 constant dollars is  $3.04.

2.

In 1989, red delicious apples cost on average $0.57 per pound. In 1998, they cost $0.94 per pound. Were apples more expensive in 1998 or in 1989? The CPI value in 1989 is 124.0 and the CPI value in 1998 is 163.0. Convert the 1989 price to constant 1998 dollars. Were apples more expensive in 1989 or in 1998? Choose two correct answers.

Question 4 options:

	The 1989 price in 1998 constant dollars is $1.24.
	The 1989 price in 1998 constant dollars is 75 cents.
	Apples were more expensive in 1989.
	Apples were more expensive in 1998.

3.

In 1948, the President of the United States earned a salary of $75,000. In 2000, the President earned a salary of $400,000. Knowing that the CPI for 1948 is 24.1 and the CPI for 2000 is 172.2, convert the 1948 salary to constant 2000 dollars. When comparing constant dollar amounts, whose salary was worth more--Harry Truman, President in 1948, or Bill Clinton, President in 2000?   Choose two correct answers.

Question 5 options:

	The 1948 salary converted to 2000 constant dollars is $535,892.
	The 1948 salary converted to 2000 constant dollars is $267,946.
	Harry Truman's salary was worth more.
	Bill Clinton's salary was worth more.

Karen is in her first year of seminary. Prior to joining the seminary, she was a teacher in a small catholic high school. She loves to work with the groups of people she knows in class; but she is always concerned about whether she is doing a good job and whether her peers see her as doing a good job. When she is studying, she gets up and rings her hands, her palms sweat, and she finds that her heart is racing. She spends endless hours studying to make sure she gets things right. With class projects, she begins to feel overwhelmed and sick to her stomach when she has to stand up in front of other people. As she prepares herself to do her presentation the day before, she is either awake till late in night or if she goes to bed, she has problem in sleeping. Joann is a 73-year-old, retired architect who recently went to Japan. While in Japan she fell and broke her femur bone and knee cap. She spent eight weeks in the hospital recovering. She traveled back to the United States and the pins came out of her knee, which meant she had to have more surgery when she returned. She spent six months in physical therapy and seemed to recover nicely. However, in the past few months she has stopped sleeping well, experiences ruminating thoughts about the accident and repeatedly checks to see if her leg works. She also refuses to leave home because she is afraid of falling. On the basis of your understanding of the above scenarios, answer the following: Name and describe the symptoms of the difficulties experienced by each of these women.

Question More than anything, Gentech Corporation of Akron is concerned about its ability to develop solid relationships with its employees and customers in South Africa. Its corporate strategy is focused on multidomestic and market-oriented operations. As a newer technology start up, it is also concerned about controlling costs in the hiring process. Gentech should first consider hiring a ___________ for this position. B. A host country (local hire) manager The Dewey Corporation, headquartered in Chicago, has a very specific need for an individual to direct its operations in Germany. Unfortunately, their current Operations Manager in Germany has submitted his resignation unexpectedly, and the company must have a replacement as soon as possible. As a company focused on global integration, they hope to find an individual with company-specific knowledge and the ability to exercise confidentiality. The company should first consider appointing a(an) ____________ to the position. Jeanette Samson is working in Germany for the U.S. based Cogswell Corporation. She enjoys her work, and loves her overseas assignment, but finds that her family is having difficulties adjusting to the new culture and language requirements of Germany. Jeanette is most likely a ________________ Roger Gilbert is thrilled with his new position as Director of Marketing with 3M Corporation in Minnesota. However, he finds that he is spending a great deal of time flying back and forth to the United States for training in advanced business techniques, and in company policies and procedures. Roger is most likely a ___________________ DuPont currently resides in Nice, France. She has been hired by the ContractCorp, a government-sanctioned contractor, to perform work in Algeria. Genevieve would be considered a ____________. A.Host country national B. A host country (local hire) manager C.Third country national D.Expatriate E.Third country national

Eddie & Company: Exceeding the
Relevant Range
Eddie & Company is a small manufacturer located in the North Central part of the United
States. The company manufactures auto and truck axles for automobile producers. Most
of its output is sold to one of the larger auto companies. Because its sales have recently
increased beyond all expectation, that company now wants Eddie & Company to increase
its production level to satisfy the increased demand.
This request poses a serious dilemma for the owners of Eddie & Company. It would
have to considerably increase production in order to ship more axles to the automaker.
However, it has already been operating at full capacity just to meet the demands of its
customers, including the automaker, when sales were low. The only ways to satisfy the
increased demand would be (1) to buy the needed new products from its competitors
and resell them to the automaker—at no profit—or (2) to increase its own production
capacity in order to satisfy the demand.
The first alternative would satisfy the short-run increase in demand, but not the
long-range one. But the second alternative of increasing production capacity would pose

different problems. First, there is no assurance that the increased demand from the auto-
maker will be permanent, and Eddie & Company could find itself with unused capacity.

Second, this alternative would mean increased fixed expenses, which would raise the
company’s break-even point. And this increase would continue even if the automaker cut
back its orders to the original level.

1.What options are available to the company?
2. What would you do if you faced the same situation?
3. Would you buy the product from your competitor to meet the contract? Explain.
4. Would you add the additional capacity? Explain.

SY Manufacturers (SYM) is producing T-shirts in three colors: red, blue, and white. The monthly demand for each color is 4,400 units. Each shirt requires 0.80 pound of raw cotton that is imported from the Luft-Geshfet-Textile (LGT) Company in Brazil. The purchasing price per pound is $2.00 (paid only when the cotton arrives at SYM's facilities) and transportation cost by sea is $0.40 per pound. The traveling time from LGT’s facility in Brazil to the SYM facility in the United States is two weeks. The cost of placing a cotton order, by SYM, is $110 and the annual interest rate that SYM is facing is 15 percent of total cost per pound.

a. What is the optimal order quantity of cotton? (Round your answer to the nearest whole number.)

	Optimal order quantity pounds

b. How frequently should the company order cotton? (Round your answer to 2 decimal places.)

	Company orders once every months.

c. Assuming that the first order is needed on 3-Jun, when should SYM place the order?

• 20-May

• 3-Jun

• 17-Jun

d. How many orders will SYM place during the next year? (Round your answer to 2 decimal places.)

	Number of orders times

e. What is the resulting annual holding cost? (Round your answer to the nearest whole number.)

	Annual holding cost per year

f. What is the resulting annual ordering cost?

	Annual ordering cost

g. If the annual interest cost is only 5 percent, how will it affect the annual number of orders, the optimal batch size, and the average inventory?

	If the holding cost is lower the batch size is thus, the average inventory is The number of orders would be

1-How do financial markets that run freely and efficiently affect the standard of living in a country?

2-What does it mean for a financial market to be considered (a) informationally efficient and (b) economically efficient?

3-Do you think investors can earn abnormal returns in financial markets that are at least semistrong-form efficient?

4-When the SEC approves a stock issue, it does not provide an opinion about the value of the stock. Do you think the SEC should give an opinion to investors on the appropriate value of the stock being issued? Explain.

5-What economic functions do financial intermediaries perform?

6-Do you think that the financial services industry will be more reregulated or deregulated in the future? Explain.

7-How do you think intermediaries' characteristics will change in the future?

8-How do financial institutions in the United States differ from financial institutions in other parts of the world? Why?

9-Express Courier (EC) needs $141 million to support future growth. If it issues common stock to raise the needed funds, EC will have to pay its investment banker 6 percent of the issue's total value. If EC can issue common stock at a market price of $80 per share, how many shares must be issued so that the company has $141 million after flotation costs to fund the planned growth?

10-Jewel Regal Cars (JRC) must raise $240 million to support operations. To do so, JRC plans to issue new bonds. Investment bankers have informed JRC that the flotation costs will be 4 percent of the total amount issued. If the market value of each bond is $1,000, how many bonds must JRC sell to net $240 million after flotation costs? Assume that fractions of bonds cannot be issued.

3. Estimate Interval The makers of a soft drink want to identify the average age of its consumers. A sample of 61 consumers was taken. The average age in the sample was 23 years with a sample standard deviation of 5 years. Please answer the following questions: a. Construct a 95% confidence interval estimate for the mean of the consumers’ age. b. Suppose a sample of 85 was selected (with the same mean and the sample standard deviation). Construct a 95% confidence interval for the mean of the consumers’ age.

[Hint: Please see Chap008 – Slides 24-29 for formula and example. Please also see page 343-349 in the textbook.]

4. Hypothesis Testing Annual per captial consumption of milk is 21.6 gallons (Statistical Abstract of the United States: 2006). Being from the Midwest, you believe milk consumption is higher there and wish to support your opinion. A sample of 16 individuals from the Midwestern town of Webster City showed a sample mean annual consumption of 24.1 gallons with a sample standard deviation of s=4.8. a. Develop a hypothesis test that can be used to determine whether the mean annual consumption in Webster City is higher than the national mean. b. At α=0.05, test for a significant difference. What is your conclusion? Extra credit 5. A lathe is set to cut bars of steel into lengths of 9 centimeters. The lathe is considered to be in perfect adjustment if the average length of the bars it cuts is 9 centimeters. A sample of 100 bars is selected randomly and measured. It is determined that the average length of the bars in the sample is 9.085 centimeters. Suppose the population standard deviation is 0.335 centimeters. a. Formulate the hypotheses to determine whether or not the lathe is in perfect adjustment. b. Compute the test statistic. c. Using the p-value approach, what is your conclusion? Let α = .05.

Privileges & Immunities Equal Protection Discussion/Due Process: Analysis & Conclusion

Privileges & Immunities,/Due Process/Equal Protection Discussion: Analysis & Conclusion

The state of Sand Crabs, facing the southern border of our country, has experienced an increase in crime, and a deterioration of effective policing. Most of the crime increase involves crimes of theft, robbery, burglary. Almost all have been crimes of violence without resulting arrests. Residents and businesses alike have been victimized. It has also been documented that over the years there has been an increase in illegal border crossings. Police have literally been under attack. There has been a 32% increase of officers injured during active crime deployment in the last 18 months. This has resulted in several full disability severances pf female officers. At the same time, the State Police force has experienced increased numbers of civil law suits and federal investigation attributed in a rise in the shooting of criminal suspects by a largely young officer base. Many senior officers claim that these young, limited English speaking officers lack patience when responding to crime scenes and do not understand local culture. Rising temperatures have made out-door patrols a grueling operation.

In response to these conditions, a group of state legislators are developing a bill, which will be introduced into the legislature with full hearing, to increase state police forces. It limits member of the state police force to male citizens of the United States who are over the age of 20 years and who have lived in the state for 12 months.

You are asked, using F-IRAC to review only the Privileges & Immunities/Due Process/Equal Protection Constitutional issues of this proposal.

Post Analysis & Conclusion (labeled separately within one Post)

4. Within-firm risk and beta risk

Understanding risks that affect projects and the impact of risk consideration

Garcia Real Estate is involved in commercial real estate ventures throughout the United States. Some of these ventures are much riskier than other ventures because of market conditions in different regions of the country.

If Garcia does not risk-adjust its discount rate for specific ventures properly, which of the following is likely to occur over time? Check all that apply.

a) The firm will increase in value.

b) The firm’s overall risk level will increase.

c) The firm could potentially reject projects that provide a higher rate of return than the company should require.

Generally, a positive correlation exists between a project’s returns and the returns on the firm’s other assets. If this correlation is _______ , stand-alone risk will be a good proxy for within-firm risk.

a)high b)low

Consider the case of another company. Davis Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVs of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below.

Risk Measure	Project A	Project B
Standard deviation of project’s expected NPVs	$80,000	$40,000
Project beta	0.9	1.1
Correlation coefficient of project cash flows (relative to the firm’s existing projects)	0.7	0.5

Which of the following statements about these projects’ risk is correct? Check all that apply.

a) Project B has more market risk than Project A.

b) Project A has more corporate risk than Project B.

c) Project A has more stand-alone risk than Project B.

d) Project B has more corporate risk than Project A.

MINICASE

A JOB AT S&S AIR

You recently graduated from college, and your job search led you to S&S Air. Because you felt the company’s business was taking off, you accepted a job offer. The first day on the job, while you are finishing your employment paperwork, Chris Guthrie, who works in Finance, stops by to inform you about the company’s 401(k) plan.

A 401(k) plan is a retirement plan offered by many companies. Such plans are tax-deferred savings vehicles, meaning that any deposits you make into the plan are deducted from your current pretax income, so no current taxes are paid on the money. For example, assume your salary will be $50,000 per year. If you contribute $3,000 to the 401(k) plan, you will pay taxes on only $47,000 in income. There are also no taxes paid on any capital gains or income while you are invested in the plan, but you do pay taxes when you withdraw money at retirement. As is fairly common, the company also has a 5 percent match. This means that the company will match your contribution up to 5 percent of your salary, but you must contribute to get the match.

The 401(k) plan has several options for investments, most of which are mutual funds. A mutual fund is a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund’s assets. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee, paid to the fund manager. The management fee is compensation for the manager, who makes all of the investment decisions for the fund.

S&S Air uses Bledsoe Financial Services as its 401(k) plan administrator. Here are the investment options offered for employees:

Company Stock One option in the 401(k) plan is stock in S&S Air. The company is currently privately held. However, when you interviewed with the owners, Mark Sexton and Todd Story, they informed you the company stock was expected to go public in the next three to four years. Until then, a company stock price is simply set each year by the board of directors.

Bledsoe S&P 500 Index Fund This mutual fund tracks the S&P 500. Stocks in the fund are weighted exactly the same as the S&P 500. This means the fund return is approximately the return on the S&P 500, minus expenses. Because an index fund purchases assets based on the composition of the index it is following, the fund manager is not required to research stocks and make investment decisions. The result is that the fund expenses are usually low. The Bledsoe S&P 500 Index Fund charges expenses of .15 percent of assets per year.

Bledsoe Small-Cap Fund This fund primarily invests in small-capitalization stocks. As such, the returns of the fund are more volatile. The fund can also invest 10 percent of its assets in companies based outside the United States. This fund charges 1.70 percent in expenses.

Bledsoe Large-Company Stock Fund This fund invests primarily in large-capitalization stocks of companies based in the United States. The fund is managed by Evan Bledsoe and has outperformed the market in six of the last eight years. The fund charges 1.50 percent in expenses.

Bledsoe Bond Fund This fund invests in long-term corporate bonds issued by U.S.-domiciled companies. The fund is restricted to investments in bonds with an investment-grade credit rating. This fund charges 1.40 percent in expenses.

Bledsoe Money Market Fund This fund invests in short-term, high credit-quality debt instruments, which include Treasury bills. As such, the return on the money market fund is only slightly higher than the return on Treasury bills. Because of the credit quality and short-term nature of the investments, there is only a very slight risk of a negative return. The fund charges .60 percent in expenses.

QUESTIONS

1. What advantages do the mutual funds offer compared to the company stock?

2. Assume that you invest 5 percent of your salary and receive the full 5 percent match from S&S Air. What EAR do you earn from the match? What conclusions do you draw about matching plans?

3. Assume you decide you should invest at least part of your money in large-capitalization stocks of companies based in the United States. What are the advantages and disadvantages of choosing the Bledsoe Large-Company Stock Fund compared to the Bledsoe S&P 500 Index Fund?

4. The returns on the Bledsoe Small-Cap Fund are the most volatile of all the mutual funds offered in the 401(k) plan. Why would you ever want to invest in this fund? When you examine the expenses of the mutual funds, you will notice that this fund also has the highest expenses. Does this affect your decision to invest in this fund?

5. A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation. The standard deviation and return of the funds over the past 10 years are listed in the following table. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the company stock will be 17 percent and 70 percent, respectively. Calculate the Sharpe ratio for the company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio?

10-Year Annual Return Standard Deviation Bledsoe S&P 500 Index Fund Bledsoe Small-Cap Fund Bledsoe Large-Company Stock Fund Bledsoe Bond Fund 6.88% 9.29 3.56 5.27 10.75% 12.81 10.99 7.12

6. What portfolio allocation would you choose? Why? Explain your thinking carefully.