The original Seven Essays, in a cool, new outfit ...
Email - [email protected]

All posts in General Questions

10. If expected return is less than required return on an asset, rational investors will
a. buy the asset, which will drive the price up and cause expected return to reach the level of the required return
b. sell the asset, which will drive the price down and cause the expected return to reach the level of the required return
c. sell the asset, which will drive the price up and cause the expected return to reach the level of the required return
d. buy the asset, since price is expected to increase

19. Manheim Candles is considering a project with the following incremental cash flows. Assume a discount rate of 10%.
Year Cash Flow
0 ($20,000)
1 0
2 $30,000
3 $30,000
Calculate the project’s MIRR.

21. Which of the following is the correct equation to solve for the NPV of the project that has an initial outlay of $30,000, followed by three years of $20,000 in incremental cash inflow? Assume a discount rate of 10%.
a. NPV = -$30,000 + $20,000(1.10)1 + $20,000(1.10)2 + $20,000(1.10)3
b. NPV = -$30,000 + $20,000(1.10)-1 + $20,000(1.10)-2 + $20,000(1.10)-3
c. NPV = -$30,000 + $20,000/(1.01).10 + $20,000/(1.02).10 + $20,000/(1.03).10 d. NPV = -$30,000 + $20,000/(1.1).10+ $20,000(1.2).10 + $20,000(1.3).10

22. Kannan Enterprise has a project with an initial outlay of $40,000, followed by three years of annual incremental cash flows of $35,000. The terminal cash flow of the project is $10,000. Assuming a discount rate of 10%, which of the following is the correct equation to solve for the IRR of the project?
a. $40,000 = $35,000(1.12)1 + $35,000(1.12)2 + $45,000(1.12)3
b. $40,000 = $35,000(1 + IRR)1 + $35,000(1+IRR)2 + $45,000(1+IRR)3
c. $40,000 = $35,000/(1.12)IRR + $35,000/(1.12)IRR + $45,000/(1.12)IRR
d. $40,000 = $35,000(1+IRR)-1 + $35,000(1+IRR)-2 + $45,000(1+IRR)-3

27. The inexpensive nature of long-term debt in a firm’s capital structure is due to the fact that
a. the equity holders are the true owners of the firm
b. interest payments are tax-deductible
c. equity capital has a fixed return
d. equity holders have a higher position in the priority of claims

28. Modigliani and Miller suggest that the value of the firm is not affected by the firm’s dividend policy, due to
a. the relevance of dividend
b. the clientele effect
c. the information content
d. the optimal capital structure

29. Proponents of the dividend irrelevance theory argue that, all else being equal, an investor’s required return and the value of the firm are unaffected by dividend policy, for all of the following reasons EXCEPT
a. the firm’s value is determined solely by the earning power and risk of its assets b. investor’s are generally risk averse and attach less risk to current as opposed to future dividends or capital gains
c. if dividends do affect value, they do so solely because of their information content, which signals managements’ earnings expectations
d. a clientele effect exists which causes a firm’s shareholders to receive the dividends that they expect

31. Convertible securities can usually be sold with interest rates ________ other nonconvertible securities
a. higher than
b. equal to
c. lower than
d. with no relation to

35. Ajax, Inc. has common stock outstanding that has a market price of $48 per share. Last yearâ??s dividend was $2.25 and is expected to grow at a rate of 4% per year, forever. The expected risk-free rate of interest is 2%, and the expected market premium is 5.5%. The company’s beta is 1.2.
a.) What is the cost of equity for Ajax using the dividend valuation model?
b.) What is the cost of equity for Ajax using the capital asset pricing model (CAPM)?

36. Ajax, Inc. is expecting to issue new debt at par with a coupon rate of 6%, and to issue new preferred stock with a $2.00 per share dividend at $20 a share. Common stock is currently selling for $25 a share. Ajax expects to pay a dividend of $2.50 per share next year, and a market analysis indicates dividends will grow at a rate of 3% per year. The marginal tax rate is 40%. If Ajax raises capital using a capital structure of 40% debt, 10% preferred stock and 50% common stock, what is the weighted average cost of capital (WACC) for Ajax, Inc.?

****Question****

“Are asymmetric information and agency cost theories relevant for the modern corporation? Should we discard agency theory and asymmetric information?Discuss.”

**Requirement **

1000-1500 words – using academic sources (not Wikipedia or other online encyclopedias), such as academic textbooks and journals.

The text used is Chapter 16 & 17 of:

Berk, J., & DeMarzo, P. (2011). Corporate finance: The Core: 2010 custom edition. (2nd ed.). Boston: Pearson Education.

Thank you.

1. The “irrelevance principle” states that in frictionless markets, capital structure (the mix of debt and equity to finance a firm’s assets) doesn’t matter. Explain this principle.

2. According to finance theory, in an imperfect market, what are the major advantages and disadvantages of utilizing debt in a firm’s capital structure?

Select one motivation theory discussed in Ch. 3-5 of the Latham text provided below.

Provide a paper wherein you trace the theory’s origins, its key researchers, related research findings, and its possible effect in this century.

Include a minimum of 5 scholarly sources.

Format your paper consistent with APA guidelines.

Chapter 3: 1950-1975: The Emergence of Theory 27
Introduction 27
Job Satisfaction and Job Performance 28
Motivation Theory 29
Need Hierarchy Theory 30
Theory X and Theory Y 32
Theory-Driven Empirical Research 33
Job Characteristics 36
Equity Theory 42
Expectancy Theory 44
Behavior Modification 48
Goal-Setting Theory 52
Concluding Comments 56
Equity Theory 42
Expectancy Theory 44
Behavior Modification 48
Goal-Setting Theory 52
Concluding Comments 56

Chapter 4: 1975-2000: The Employee Is Immersed in Thought 59
Introduction 59
Goal-Setting Theory 60
Goal Limitations 63
Social Cognitive Theory 70
Self-Regulation 76
Job Characteristics Revisited 79
A Comprehensive Framework: The High-Performance Cycle 80
Demands Influence Performance 80
Mediators 85
Moderators 86
Performance Leads to Rewards That Affect Satisfaction 92
Satisfaction Leads to Organizational Commitment 93
Principles of Organizational Justice 95
Concluding Comments 98

Chapter 5: 20th-Century Controversies 99
Money 99
Intrinsic vs. Extrinsic Motivation 102
Performance and Satisfaction 105
Participative Decision Making 108
Seismic Events: Summary and Overview of the 20th Century 116
From a Scientist’s Viewpoint 116
From a Practitioner’s Viewpoint 121

This case involves thinking about the meaning brands have for consumers, the roles brands play, the views customers have of brands developed through marketing and non-marketing influences and how products are distributed.

Write an answer of no more than six pages in length (excluding title and reference pages and any appendices) addressing the following question:

Following is a list of product categories:

CANNED FOOD.
CHILDREN’S TOYS.
CABLE SERVICE.
DEODORANT, COLOGNE OR PERFUME.
INTERNET MATCH-MAKING SERVICE.
FOOTWEAR (E.G. BOOTS HIKING/WORKING AND/OR FORMAL SHOES).

Products and Brands:

In her 1998 paper Susan Fournier argues that consumers have relationships with brands.

1. Explain what Fournier means by “having a relationship” with a brand.

2. Identify two brands chosen from the product categories above and explain whether or not you believe that consumers have relationships with those brands.

3. Expand your thinking and explain whether, based on Fournier’s paper, your own experience and your knowledge of other people, consumers have relationships with all brands.

Distribution:

4. Select TWO products from the list of product categories above (they can be the same as for sections 1 to 3 or different – your choice) and using the teaching materials and any additional research explain what you think would be an appropriate distribution strategy for them. In doing so compare and contrast the two distribution strategies explaining why they would be similar or different. Illustrate your answer by referring to specific brands within each of the two product categories you have chosen.

Example:

“Products & Brands (sections 1-3: Canned Food (Heinz baked beans) and Children’s Toys (Lego)

Place (section 4): Caned Food (Heinz baked beans) and Perfume (Chanel No. 5)”

For the Product and brands part of the case there are three case readings. In Susan Fournier’s 1998 article she argues that consumers have relationships with brands. An article reporting the results of a study by a market research firm says that mostly they don’t. Other marketing academics have also said that they don’t, (e.g. Vargo and Lusch, (2004), in a Journal of Marketing article state that “inanimate items of exchange cannot have relationships”). Ah, but is a brand an “inanimate item of exchange”? Perhaps they do but only under certain circumstances? That is for you to consider.

Case-related articles:

Fournier S. (1998, Mar). Consumers and their brands: Developing relationship theory in consumer research. Journal of Consumer Research. 24, (4). Retrieved from Proquest May 10, 2011.
Anon, (2001). Consumers say “no thanks” to relationships with brands. (2001, May). Direct Marketing, 64(1), 48-51+. Retrieved May 10, 2011, from ProQuest Central. (Document ID: 74823521).
Lou Cooper. (2010, October). CUSTOMER RELATIONS: The secret to a good customer relationship. Marketing Week, 24-26. Retrieved May 10, 2011, from ProQuest Central. (Document ID: 2168595091). (You can see an online version of this article, plus reader comments and other associated information at: http://www.marketingweek.co.uk/trends/the-secret-to-a-good-customer-relationship/3019534.article viewed May 10, 2011).
EXPECTATIONS

Sources of information for this case may include:

Introspection, though you should not rely solely on anecdotal evidence.
Questioning friends and colleagues – strongly recommended.