Four (4) Discussion Question and One (1) Homework Assignment

Business Admin Capstone Course

Discussion Question 1

“International Opportunities” Please respond to the following:

  • Determine why, given the advantages of international diversification, some firms choose not to expand internationally. Provide specific examples to support your response.
  • As firms attempt to internationalize, they may be tempted to locate their facilities where business regulation laws are lax. Discuss the advantages and potential risks of such an approach, using specific examples to support your response.

Discussion Question 2

Use the Internet to research two U.S.-based companies you believe would mutually benefit from working together in some way. Be prepared to discuss

“Cooperative Strategy” Please respond to the following:

  • From an ethical perspective, determine how much information a firm is obliged to tell a potential strategic alliance partner about what it expects to learn from the cooperative arrangement. Explain your rationale.
  • From the e-Activity, determine which type of cooperative strategy would most benefit the two companies you researched. Provide specific examples to support your response.

International Problem Course

Discussion 1

“National Security” Please respond to the following:

The conclusion of the Cold War seemed to decrease the security problems of the world’s major powers. However, radical Islam created new, unexpected threats, including the 9/11 attacks. This demonstrated that all countries must always be on guard for the unexpected.

  • Select any two of the four basic strategies used to preserve security. Identify and describe what assumptions are made about the opponent according to each of the two strategies you chose.
  • Give an example of each of the two (2) strategies in current world politics and speculate on their effectiveness.

Introduction to Finance Course

Discussion 1

Describe other functions of investment bankers, their recent attempts to innovate, and the regulations they follow.

Homework

1 You are the president and CEO of a family-owned manufacturing firm with assets of $45 million. The company articles of incorporation and state laws place no restrictions on the sale of stock to outsiders. An unexpected opportunity to expand arises that will require an additional investment of $14 million. A commitment must be made quickly if this opportunity is to be taken. Existing stockholders are not in a position to provide the additional investment. You wish to maintain family control of the firm regardless of which form of financing you might undertake. As a first step, you decide to contact an investment banking firm.

  1. What considerations might be important in the selection of an investment banking firm?
  2. A member of your board has asked if you have considered competitive bids for the distribution of your securities compared with a negotiated contract with a particular firm. What factors are involved in this decision?
  3. Assuming that you have decided upon a negotiated contract, what are the first questions that you would ask of the firm chosen to represent you?
  4. As the investment banker, what would be your first actions before offering advice?
  5. Assuming the investment banking firm is willing to distribute your securities, describe the alternative plans that might be included in a contract with the banking firm.
  6. How does the investment banking firm establish a selling strategy?
  7. How might the investment banking firm protect itself against a drop in the price of the security during the selling process?
  8. What follow-up services will be provided by the banking firm following a successful distribution of the securities?
  9. Three years later, as an individual investor, you decide to add to your own holding of the security but only at a price that you consider appropriate. What form of order might you place with your broker?

2 In late 2014, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $45. Notwithstanding the success of the company, competitors are gaining much strength. Further, your analysis indicates that the stock may be over-priced based on your projection of future earnings growth. Your analysis, however, was the same one year ago and the earnings have continued to increase. Actions that you might take range from an outright sale of the stock (and the payment of capital gains tax) to doing nothing and continuing to hold the shares. You reflect on these choices as well as other actions that could be taken. Describe the various actions that you might take and their implications.

3 Which of the following securities is likely to be the most liquid according to these data? Explain.

Stock

Bid

Ask

R

$39.43

$39.55

S

13.67

13.77

T

116.02

116.25

4 You purchased shares of Broussard Company using 50 percent margin; you invested a total of $20,000 (buying 1,000 shares at a price of $20 per share) by using $10,000 of your own funds and borrowing $10,000. Determine your percentage profit or loss under the following situations (ignore borrowing costs, dividends, and taxes). In addition, what would the percentage profit and loss be in these scenarios if margin were not used?

  1. the stock price rises to $23 a share
  2. the stock price rises to $30 a share
  3. the stock price falls to $16 a share
  4. the stock price falls to $10 a share

5 Currently, the price of Mattco stock is $30 a share. You have $30,000 of your own funds to invest. Using the maximum margin allowed, what is your percentage profit or loss under the following situations (ignore dividends and taxes)? What would the percentage profit or loss be in each situation if margin were not used?

  1. you purchase the stock and it rises to $33 a share
  2. you purchase the stock and it rises to $35 a share
  3. you purchase the stock and it falls to $25 a share
  4. you purchase the stock and it falls to $20 a share

6 The Trio Index includes three stocks, Eins, Zwei, and Tri. Their current prices are listed below.

Stock

Price at Time (t)

Eins

$10

Zwei

$20

Tri

$40

  1. Between now and the next time period, the stock prices of Eins and Zwei increase 10 percent while Tri increases 20 percent. What is the percentage change in the price-weighted Trio Index?
  2. Suppose, instead, that the price of Eins increases 20 percent while Zwei and Tri rise 10 percent. What is the percentage change in the price-weighted Trio Index? Why does it differ from the answer to part a?

7 The four stocks below are part of an index. Use the information below:

  1. Compute a price-weighted index by adding their prices at time t and time t + 1. What is the percentage change in the index?
  2. Compute a value-weighted index by adding their market values at time t and time t + 1. What is the percentage change in the index?
  3. Why is there a difference between your answers to (a) and (b)?

Stock

# Of Shares Outstanding

Price at Time (t)

Price at Time (t + 1)

Eeny

100

10

15

Meeny

 50

20

22

Miney

 50

30

28

Moe

 20

40

42

8 The Quad Index is comprised of four stocks: Uno, Dos, Tres, and Fore.

  1. Given the data below on the number of shares outstanding and their share prices at time (t) and time (t + 1), what is the percentage change in the Quad Index if it is calculated as a price-weighted index? As a value-weighted index?

Stock

# Of Shares Outstanding

Price at Time (t)

Price at Time (t + 1)

Uno

1000

$10

$11

Dos

 500

 20

 21

Tres

 250

 40

 42

Fore

 100

 50

 60

  1. Instead of the prices shown above, suppose we switch the prices for Uno and Fore. That is, Uno’s stock price is $50 at time (t) and it rises to $60 by time (t + 1), and Fore’s stock price rises from $10 to $11 over the same time frame. What is the percentage change in the Quad Index if it is computed as a price-weighted index? As a value-weighted index?
  2. Explain similarities or differences in your answers to Parts (a) and (b).

9 A U.S. firm wants to raise $10 million of capital so it can invest in new technology. How much will it need to raise to net $10 million using the average costs of raising funds in the chapter?

10 A U.S. firm wants to raise $15 million by selling 1 million shares at a net price of $15. We know that some say that firms “leave money on the table” because of the phenomenon of underpricing.

  1. Using the average amount of underpricing in U.S. IPOs, how many fewer shares could it sell to raise these funds if the firm received a net price per share equal to the value of the shares at the end of the first day’s trading?
  2. How many less shares could it sell if the IPO was occurring in Germany?
  3. How many less shares could it sell if the IPO was occurring in Korea?
  4. How many less shares could it sell if the IPO was occurring in Canada?
 
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