Monitoring the Cost Of Money: Interest Rates

Interest rates, the cost of money, influence most all factors related to personal and corporate capital budgeting. The more obvious personal information for the cost of money is the rates associated with a mortgage or car loan. As a CFO you would “shop” interest rates to find the best rate for your financing needs.

Would you, as the CFO, finance your projects as soon as possible if cost of capital was expected to drop? Please explain.

More importantly where do you find the information to analyze expected changes in interest rates?

• Ravi wants to know what impact switching to a commission versus a salary system will have on his sales employees’ effectiveness. He selects two of the seven sales regions he is responsible for and changes their pay from salary only to commission only (IV). He compares monthly sales data (DV) for six months prior and six months after this change for the new commission-only regions, and also compares these numbers to the other five salary-only regions.
  • What form of study design is this?
  • Will the researcher be able to make claims about causality with this study?

The company has realized an operating profit of 5 billion won this year. Depreciation cost was 500 million won, and interest cost is 1 billion won. Inventories increased by 1 billion won compared to the beginning and sales bonds increased by 2 billion won. The corporate tax rate applied to this company is said to be 40%. Assume that other conditions are constant and estimate that:

1. Net profit for this year

2. Cash Flows from Changes in Net Driver's Copy

(1 WON = 1, 100 WON = 100. NO CALCULATE FOR DOLLAR PLEASE!)

Accessing the Bureau of Economic Analysis Website Study real GDP growth rates and their components for the four most recent quarters and complete the following: Identify and explain the components that comprise GDP and their relative contributions to GDP. Describe the recent rate of real GDP growth. Identify and analyze the factors that have driven growth (or the lack of growth) in real GDP. Identify any recent events or changes that have caused an increase in GDP but not a correlating increase in our nation's standard of living. Forecast real GDP growth over the next year and explain your answer.

1. hy does money have a time value?

2. What is an ordinary annuity? An annuity due? And a deferred annuity? Be sure to discuss when the stream of payments will occur.

3. What are three (3) different financial applications of the time value of money?

4. As an investor, if you had a choice of daily, monthly, or quarterly compounding, which would you choose? Why?

5. How are present values affected by changes in interest rates?

6. The interest on your home mortgage is tax deductible. Why are the early years of the mortgage more helpful in reducing taxes than in the later years?

Consider the following stock ownership situation (Taylor & Greenlaw, 2014, p. 403).

Investor 1: 20,000 shares

Investor 2: 18,000 shares

Investor 3: 15,000 shares

Investor 4: 10,000 shares

Investor 5: 7,000 shares

Investors 6 – 11: 5,000 shares each

What is the minimum number of investors it would take to vote to change the top management of the company?

Which investors would this involve?

In 1-2 paragraphs discuss if any one investor would be able to make corporate changes without the agreement of the other investors.

2. Assume that the market for beer in San Deigo by college students is perfectly competitive. Use a graph of the market and a representative firm in the market to illustrate the initial market conditions (long run conditions) and the changes, in both the short and long run, to a reduction in the number of colleges in San Diego

3. In relation to question 2, assume that the market for higher education in San Deigo is best characterized as monopolistically competitive. Assuming that this market was in long run equilibrium prior to the college(s) leaving the market, graphically show the impact of the reduction in colleges on this market in both the long and short run.

QC Corporation expects an EBIT of $7,500 every year forever. Because it has no depreciable assets, this is also equivalent to its operating cash flows. QC currently has no debt, giving it an equity beta of 1.4. The firm could borrow at 9.6%, with a debt beta of .2, but this would increase the equity beta to 1.9. There are no corporate income taxes, the risk-free rate is 6%, the return on the market portfolio is 10%.

a. What is the current value of the unlevered firm?

b. What is the value of the firm if it changes its capital structure to include 50% debt.

2. Given this demand curve for coffee in lbs, Q₁ = 2 -1*p₁ + 0.5* p₂ + .01*Y +ε₁, where Q₁ is the demand for coffee and p₁ is the price of coffee per lb, p₂ is the price per lb of a related good and Y is the consumer’s weekly budget (20 points)

1. Which variable is the dependent variable and which are independent variables and why?

1. What does each coefficient (parameter) mean as they apply to changes in demand for coffee?

1. What does ε₁ mean? Why is it in the equation?

1. Is good 2 a complement or substitute? (Explain your answer.)

Consider the balance sheet for the Georgia bank as presented below.

Using a required reserve ratio of 10% and if the bank keeps no excess reserves, write the changes to the balance sheet for each of the following scenarios:

Steve withdraws $200 from his checking account.

The Fed buys $2,000 in government securities from the bank.