The original Seven Essays, in a cool, new outfit ...
Call 412-567-OXEN [6936] Fax 412-567-6936 Email - [email protected]

All posts in General Questions

You are considering expanding your line of equipment and apparel for high school athletic teams to include soccer teams. Based on research conducted by the Marketing department, you estimate an increase in sales for your division of $150,000 per year the first two years, then $250,000 per year over the following three years. In order to manufacture the necessary equipment, you will need to invest in some new manufacturing equipment that you estimate will cost $300,000. You figure that you will be able to manufacture the equipment and apparel utilizing your existing manufacturing staff and will not need to hire additional workers.

After gathering the information, you arranged a meeting with the Chief Financial Officer (CFO), Don Morgan. During the meeting Don listened to your proposal, reviewed your information, and stated that he would need to do some additional calculations to see if the capital project would fit into the firm s financial plan. Don used some terminology that you didn t quite understand. For example, he mentioned the time value of money, the company s cost of capital, market risk, weighted average cost of capital, and marginal cost of capital.

Dazed and confused, you walk back to the manufacturing plant in search of other division managers to find out what these terms mean. Required: Discuss the following questions with the other managers (your classmates):

What is the time value of money and how does it apply to this situation? How might you (as division managers) use the time value of money to make managerial decisions? What is weighted average cost of capital and how does it impact the decision to expand your division? What is marginal cost of capital and how does it impact the decision to expand your division?

You purchase 500 shares of 2nd Chance Co stock on margin at a price of $53. Your broker requires you to deposit $11,000. Suppose you sell the stock at a price of $62, what is your return? What would your return have been had you purchased the stock without margin? What if the stock price is $44 when you sell the stock?

would say that my organization would have unearned revenue in the liabilities section on the balance sheet. This is because invoices are put out to customers and they are not always paid in full. Unearned revenue would be considered cabinets installed but not paid for, appliances, any service that Denca has done that is not paid for yet but invoiced and they will see the money Do you agree that the above mentioned transactions result in the recording of unearned revenue? Why or why not?