Category Archives: STRAYER

LEG 500 Assignment 1 Employment-At-Will Doctrine

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LEG 500 Assignment 1 Employment-At-Will Doctrine

As a manager and supervisor of an accounting department, discuss the following issues related to the employment-at-will doctrine and liability of an employer based on actions and responses to the employee’s behavior and actions. Jennifer, a recent graduate, has recently been hired by your accounting firm out of college. Upon being hired, she engages in a number of different behaviors that need your attention.

For each category of behavior, describe what steps you would take to address the situation.

Write a four to five (4-5) page paper in which you:

1- Describe what steps you would take to address the following scenario involving skills, competence, and abilities:

  • The employee seems to be unable to learn the computer applications that are basic to her job responsibilities, but, consistently “tells” her boss that she is “a good worker and a genius” and that he does not “appreciate her”.  Even after a few months of training and support, she is unable to use the computer tools to be productive and efficient in completing the required tasks.

2- Describe what steps you would take to address the following scenario involving management, behavior, and performance:

  • The employee tends to burst into a rage when criticized and is frequently late to work as noticed by her boss and other staff members. When her boss attempts to address her behavioral issues and the company late policy, the employee’s response is that she “knows her rights and what to do” if she is wrongfully discharged. She also says she took a business law class in undergrad that taught her “everything she needs to know about exceptions to the employment-at-will doctrine and wrongful discharge in violation of public policy”.

3- Describe what steps you would take to address the following scenario involving labor and laws:

  • The employee takes a day off from work, without management consent, for her religious holiday observance that falls on a day that is during “tax season”. The day off occurred during an incredibly busy period for the company during which the employer had notified all employees they were not allowed to take off without prior management approval. Also, there is no labor union for accountants. However, she begins talking to her co-workers during lunch breaks and sometimes during regular work hours, encouraging them to organize and form a union to “protect ourselves”.

4- Describe what steps you would take to address the following scenario involving policies and procedures:

  • The employee’s supervisor consistently asks her out on dates; the employee initially refuses to go out on a date with her supervisor. The employee later discusses the issue with her girlfriend who encourages her to accept his offers. During her new employee orientation, the employee was informed of the company policy which prevented employees from dating their supervisor and was given an employee handbook with the written policy. The employee and her supervisor later begin having a consensual relationship.

Use at least three (3) quality legal references in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
  • Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

  • Assess how employment-at-will and Sarbanes-Oxley impact corporate whistleblowing.
  • Use technology and information resources to research issues in law, ethics, and corporate governance.
  • Write clearly and concisely about law, ethics, and corporate governance using proper writing mechanics.

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LEG 500 Assignment 2 The Value of Digital Privacy in an Information Technology Age

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LEG 500 Assignment 2 The Value of Digital Privacy in an Information Technology Age

Research Websites and other technologies that provide private information on U.S. citizens.

Write a 3-4 page paper in which you:

  1. List and describe at least three (3) technologies that allow an individual to research citizens’ private data.
  2. Discuss the advantages and disadvantages of public access to this information, both for the researchers and those who are being “investigated”.
  3. Determine what measures citizens can take to protect private information or information they do not want to be disclosed.
  4. Discuss a federal law that grants the federal government the legal right to make private information on U.S. citizens available to the public, and whether or not you agree with this law.
  5. Determine whether there are “electronic privacy laws” that can prevent others from having access to “private information” as well as how effective they are.

The specific course learning outcomes associated with this assignment are:

  • Analyze employee and consumer privacy under the law.
  • Use technology and information resources to research issues in law, ethics, and corporate governance.
  • Write clearly and concisely about law, ethics, and corporate governance using proper writing mechanics.

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LEG 500 Assignment 3 Corporate Governance and Ethical Responsibility Research Paper

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LEG 500 Assignment 3 Corporate Governance and Ethical Responsibility Research Paper

Dr. DoRight has recently been hired as the President of the “Universal Human Care Hospital”, where he oversees all departments with over 5,000 employees and over 20,000 patients at the medical facility. He has been provided with a broad set of duties and oversight of numerous departments, including business development, customer services, human resources, legal, patient advocacy, to name a few. He has managers in each department that he supervises and who work with him to address the needs of the various internal and external stakeholders of the hospital. Dr. DoRight discovers that some patients within the hospital have been dying as a result of a variety of illegal procedures by doctors and nurses, and negligent supervision and oversight on their part. This was brought to his attention in a few meetings and he told his Regional Director Compliance Manager and Executive Committee in January 2009. He was told by them that the matter would be investigated and they would report any findings to him as soon as possible. After two (2) years, there have been no results from the investigation and some patients are still passing away due to the negligent activities. He also answers to a board of trustees and interfaces with numerous community organizations and corporations who have various reasons for doing business with the hospital. Dr. DoRight continues to win awards for his leadership of the hospital and meeting business goals. He was recently named “Medical Business Executive of the Year” in 2011.

Write a six to seven (6-7) page paper in which you:

  1. Determine at least three (3) different internal and external stakeholders that Dr. DoRight might have to deal with on a daily basis at the hospital.
  2. Compare and contrast potential conflicts of interest that may exist between the internal and external stakeholders.
  3. Discuss whether Dr. DoRight has fulfilled his ethical duty by reporting the illegal procedures.
  4. Describe the deontology principle and apply it to the ethical dilemma that Dr. DoRight faces in this case.
  5. Describe the utilitarianism principle and apply it to the ethical dilemma Dr. Do Right faces in this case.

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA or school-specific format. Check with your professor for any additional instructions.
  • Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required page length.
  • The specific course learning outcomes associated with this assignment are:
  • Analyze employee rights to health and safety in the workplace.
  • Use technology and information resources to research issues in law, ethics, and corporate governance.

Write clearly and concisely about law, ethics, and corporate governance using proper writing mechanics.

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LEG 500 Assignment 4 Products Liability Research Paper

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LEG 500 Assignment 4 Products Liability Research Paper

Select a company that has been the subject of a product liability lawsuit in the last ten (10) years. Research the lawsuit using legal data.

Write a six to eight (6-8) page paper in which you:

  • Describe the company and the product safety issue that led to the lawsuit.
  • Discuss the legal theories used by the plaintiff to recover in this lawsuit, how the lawsuit was resolved, and why you agree with the decision in the case.
  • Describe the changes that have taken place in the company to ensure greater safety of this product or its products.
  • Discuss which regulatory agency oversees the particular industry the company is in.
  • Make recommendations to the company about avoiding future lawsuits.
  • Use at least three (3) quality legal references in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; references must follow APA or school-specific format. Check with your professor for any additional instructions.
  • Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required page length.

The specific course learning outcomes associated with this assignment are:

  • Analyze laws relative to product safety and liability.
  • Use technology and information resources to research issues in law, ethics, and corporate governance.
  • Write clearly and concisely about law, ethics, and corporate governance using proper writing mechanics.

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LEG 500 Complete Course

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LEG 500 Complete Course

LEG 500 Assignment 1 Employment-At-Will Doctrine

LEG 500 Assignment 2 The Value of Digital Privacy in an Information Technology Age

LEG 500 Assignment 3 Corporate Governance and Ethical Responsibility Research Paper

LEG 500 Assignment 4 Products Liability Research Paper

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FIN 534 Week 10 Chapter 17 Solution

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FIN 534 Week 10 Chapter 17 Solution

 

1. In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

a. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.

b. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.

c. The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.

d. The spot rate equals the 90-day forward rate.

e. The spot rate equals the 180-day forward rate.

2. If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ________________ to the spot rate.

a. premium of 8%

b. premium of 18%

c. discount of 18%

d. discount of 8%

e. premium of 16%

3. Stover Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure?

a. -$396

b. -$243

c. $0

d. $243

e. $638

4. A product sells for $750 in the United States. The exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

a. 123.75 Swiss francs

b. 454.55 Swiss francs

c. 750.00 Swiss francs

d. 1,237.50 Swiss francs

5. Chen Transport, a U.S. based company, is considering expanding its operations into a foreign country. The required investment at is $10 million. The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next 2 years, and then a possible terminal value of $8 million. In addition, due to political risk factors, Chen believes that there is a 50% chance that the gross terminal value will be only $2 million and a 50% chance that it will be $8 million. However, the government of the host country will block 20% of all cash flows. Thus, cash flows that can be repatriated are 80% of those projected. Chen’s cost of capital is 15%, but it adds one percentage point to all foreign projects to account for exchange rate risk. Under these conditions, what is the project’s NPV?

a. $1.01 million

b. $2.77 million

c. $3.09 million

d. $5.96 million

e. $7.39 million

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Finance 534 week 10 quiz 9

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Finance 534 week 10 quiz 9

Inflation, recession, and high interest rates are economic events that are best characterized as being

Answer

systematic risk factors that can be diversified away.

company-specific risk factors that can be diversified away.

among the factors that are responsible for market risk.

risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers.

irrelevant except to governmental authorities like the Federal Reserve.

2 points

Question 2

Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.)

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FIN 534 Week 10 DQ 1

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FIN 534 Week 10 DQ 1

Based on what you uncovered in the e-Activity, determine the most significant risk factors associated with investing in the company you selected when compared with investing in a domestic company. Provide specific examples to support your response.

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Finance 534 week 11 quiz 10

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Finance 534 week 11 quiz 10

 

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock’s price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.

Call options generally sell at a price less than their exercise value.

If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

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Finance 534 Complete Course

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Finance 534 Complete Course

FIN 534 Week 1 Chapter 1 Solution

FIN 534 Week 1 Chapter 2 Solution

FIN 534 Week 1 DQ 1

FIN 534 Week 1 DQ 2

FIN 534 Week 1 Quiz 1

FIN 534 Week 2 Chapter 3 Solution

FIN 534 Week 2 DQ 1

FIN 534 Week 2 DQ 2

FIN 534 Week 3 Chapter 4 Solution

FIN 534 Week 3 Chapter 5 Solution

FIN 534 Week 3 DQ 1

FIN 534 Week 3 DQ 2

FIN 534 Week 3 Quiz 2

FIN 534 Week 4 Chapter 6 Solution

FIN 534 Week 4 Chapter 7 Solution

FIN 534 Week 4 DQ 1

FIN 534 Week 4 DQ 2

FIN 534 Week 4 quiz 3

FIN 534 Week 5 Chapter 8 Solution

FIN 534 Week 5 Chapter 9 Solution

FIN 534 Week 5 DQ 1

Finance 534 week 5 quiz 4

FIN 534 Week 6 Chapter 10 Solution

FIN 534 Week 6 Chapter 11 Solution

FIN 534 Week 6 DQ 1

FIN 534 Week 6 Quiz 5

FIN 534 Week 7 Chapter 12 Solution

FIN 534 Week 7 Chapter 13 Solution

FIN 534 Week 7 DQ 1

FIN 534 Week 7 DQ 2

FIN 534 Week 7 Quiz 6

FIN 534 Week 8 Chapter 14 Solution

FIN 534 Week 8 Chapter 15 Solution

FIN 534 Week 8 DQ 1

FIN 534 Week 8 DQ 2

Finance 534 Week 8 quiz 7

FIN 534 Week 9 Chapter 16 Solution

FIN 534 Week 9 DQ 1

FIN 534 Week 9 DQ 2

FIN 534 Week 9 Quiz 8

FIN 534 Week 10 Chapter 17 Solution

FIN 534 Week 10 DQ 1

FIN 534 Week 10 DQ 2

Fin 534 week 10 quiz 9

FIN 534 Week 11 DQ 1

FIN 534 Week 11 DQ 2

Fin 534 Week 11 quiz 10

 

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FIN 534 Week 9 Chapter 16 Solution

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FIN 534 Week 9 Chapter 16 Solution

 

1. Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show its assets and liabilities at peak and off-peak seasons (in thousands of dollars):

Peak Off-Peak

Cash $ 50 $ 30

Marketable securities 0 20

Accounts receivable 40 20

Inventories 100 50

Net fixed assets 500 500

Total assets $690 $620

Payables and accruals $ 30 $ 10

Short-term bank debt 50 0

Long-term debt 300 300

Common equity 310 310

Total claims $690 $620

From this data we may conclude that

a. Swim Suits’ current asset financing policy calls for exactly matching asset and liability maturities.

b. Swim Suits’ current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.

c. Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.

d. Without income statement data, we cannot determine the aggressiveness or conservatism of the company’s current asset financing policy.

e. Without cash flow data, we cannot determine the aggressiveness or conservatism of the company’s current asset financing policy.

2. Which of the following statements is CORRECT?

a. A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to finance the 10% growth rate.

b. In managing a firm’s accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently.

c. Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales.

d. Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

e. Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio.

3. Halka Company is a no-growth firm. Its sales fluctuate seasonally, causing total assets to vary from $320,000 to $410,000, but fixed assets remain constant at $260,000. If the firm follows a maturity matching (or moderate) working capital financing policy, what is the most likely total of long-term debt plus equity capital?

a. $260,642

b. $274,360

c. $288,800

d. $304,000

e. ) $320,000

Lower total asset range $320,000

Upper total asset range $410,000

Minimum total + Min. CA = $320,000  = LT Debt + Equity

A maturity matching policy implies that fixed assets and permanent current assets are financed with long-term sources.  This is its most likely level of long-term financing.

4. Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?

Average inventory = $75,000

Annual sales = $600,000

Annual cost of goods sold = $360,000

Average accounts receivable = $160,000

Average accounts payable = $25,000

a. 120.6 days

b. 126.9 days

c. 133.6 days

d. 140.6 days

e. 148.0 days

Avg. inventory =  $75,000  Annual sales =  $600,000

Avg. receivables =  $160,000  Annual COGS =  $360,000

Avg. payables =  $25,000  Days in year =  365

Inv. conv. /(COGS/365)  76.0

+ /(Sales/365)  97.3

– Payables /(COGS/365)  -25.3

Cash conversion cycle (CCC)  148.0

5. Affleck Inc.’s business is booming, and it needs to raise more capital. The company purchases supplies on terms of 1/10 net 20, and it currently takes the discount. One way of getting the needed funds would be to forgo the discount, and the firm’s owner believes she could delay payment to 40 days without adverse effects. What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.)

a. 10.59%

b. 11.15%

c. 11.74%

d. 12.36%

e. 13.01%

Discount %  1%  Net days  20

Discount days  10  Actual days to payment  40

EAR = [1 + Disc. %/(100 – Disc. %)][365/(Actual days – Disc. Period)] – %

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FIN 534 Week 9 Quiz 8

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FIN 534 Week 9 Quiz 8

 

Stock A’s beta is 1.5 and Stock B’s beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

Answer

When held in isolation, Stock A has more risk than Stock B.

Stock B must be a more desirable addition to a portfolio than A.

Stock A must be a more desirable addition to a portfolio than B.

The expected return on Stock A should be greater than that on B.

The expected return on Stock B should be greater than that on A.

2 points

Question 2

Which of the following statements is CORRECT?

Answer

A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.

A portfolio that consists of 40 stocks that are not highly correlated with “the market” will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

A two-stock portfolio will always have a lower beta than a one-stock portfolio.

If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.

A stock with an above-average standard deviation must also have an above-average beta.

2 points

Question 3

Which of the following statements is CORRECT?

Answer

The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.

If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.

The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.

The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.

It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return, rRF.

2 points

Question 4

The risk-free rate is 6%; Stock A has a beta of 1.0; Stock B has a beta of 2.0; and the market risk premium, rM − rRF, is positive. Which of the following statements is CORRECT?

Answer

If the risk-free rate increases but the
market risk premium stays unchanged, Stock B’s required return will increase by more than Stock A’s.

Stock B’s required rate of return is twice
that of Stock A.

If Stock A’s required return is 11%, then the market risk premium is 5%.

If Stock B’s required return is 11%, then
the market risk premium is 5%.

If the risk-free rate remains constant but the market risk premium increases, Stock A’s required return will increase by more than Stock B’s.

2 points

Question 5

Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks?

Answer

The diversifiable risk of your portfolio will
likely decline, but the expected market risk should not change.

The expected return of your portfolio is likely
to decline.

The diversifiable risk will remain the same, but the market risk will likely decline.

Both the diversifiable risk and the market risk
of your portfolio are likely to decline.

The total risk of your portfolio should decline, and as a result, the expected rate of return on the portfolio should also decline.

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FIN 534 Week 9 DQ 1

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FIN 534 Week 9 DQ 1

Based on the content of this chapter and what you discovered in the e-Activity, analyze cash management technology and make at least one recommendation for another technique that would enhance working capital management. Explain the reasoning behind your recommendation.

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FIN 534 Week 8 Chapter 14 Solution

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FIN 534 Week 8 Chapter 14 Solution

 

1. Which of the following statements about dividend policies is CORRECT?

a. Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the ―bird-in-the hand‖ effect.

b. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.

c. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.

d. One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.

e. The clientele effect suggests that companies should follow a stable dividend policy.

2. Which of the following statements is CORRECT?

a. One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.

b. One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.

c. Stock repurchases can be used by a firm that wants to increase its debt ratio.

d. Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities.

e. One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.

3. Which of the following statements is CORRECT?

a. When firms are deciding on the size of stock splits—say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used.

b. Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices. However, this was determined to be a deceptive practice, and it is illegal today.

c. Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits.

d. When a company declares a stock split, the price of the stock typically declines—by about 50% after a 2-for-1 split—and this necessarily reduces the total market value of the equity.

e. If a firm’s stock price is quite high relative to most stocks—say $500 per share—then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50. Moreover, if the price is relatively low—say $2 per share—then it can declare a ―reverse split‖ of say 1-for-25 so as to bring the price up to somewhere around $50 per share.

4. Which of the following statements is CORRECT?

a. If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm’s dividend payout.

b. The clientele effect can explain why so many firms change their dividend policies so often.

c. One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele.

d. New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don’t change the firm’s total amount of book equity.

e. Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received.

5. DeAngelo Corp.’s projected net income is $150.0 million, its target capital structure is 25% debt and 75% equity, and its target payout ratio is 65%. DeAngelo has more positive NPV projects than it can finance without issuing new stock, but its board of directors had decreed that it cannot issue any new shares in the foreseeable future. The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or the target dividend payout policy. Versus the current policy, how much larger could the capital budget be if (1) the target debt ratio were raised to 75%, other things held constant, (2) the target payout ratio were lowered to 20%, other things held constant, and (3) the debt ratio and payout were both changed by the indicated amounts.

Increase in Capital Budget

Increase Debt Lower Payout Do Both to 75% to 20%___________________

a. $114.0 $73.3 $333.9

b. $120.0 $77.2 $351.5

c. $126.4 $81.2 $370.0

d. $133.0 $85.5 $389.5

e. $140.0 $90.0 $410.0

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FIN 534 Week 8 Chapter 15 Solution

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FIN 534 Week 8 Chapter 15 Solution

 

1. Which of the following statements best describes the optimal capital structure?

a. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s earnings per share (EPS).

b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s stock price.

c. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of equity.

d. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of debt.

e. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of preferred stock.

2. Which of the following statements is CORRECT?

a. A firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, its cost is generally lower than the after-tax cost of debt.

b. The capital structure that minimizes a firm’s weighted average cost of capital is also the capital structure that maximizes its stock price.

c. The capital structure that minimizes the firm’s weighted average cost of capital is also the capital structure that maximizes its earnings per share.

d. If a firm finds that the cost of debt is less than the cost of equity, increasing its debt ratio must reduce its WACC.

e. Other things held constant, if corporate tax rates declined, then the Modigliani-Miller tax-adjusted tradeoff theory would suggest that firms should increase their use of debt.

3. Which of the following statements is CORRECT?

a. In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.

b. There is no reason to think that changes in the personal tax rate would affect firms’ capital structure decisions.

c. A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal.

d. If a firm’s after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.

e. Suppose a firm has less than its optimal amount of debt. Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity financing.

4. Companies HD and LD have identical amounts of assets, operating income (EBIT), tax rates, and business risk. Company HD, however, has a much higher debt ratio than LD. Company HD’s basic earning power ratio (BEP) exceeds its cost of debt (rd). Which of the following statements is CORRECT?

a. Company HD has a higher return on assets (ROA) than Company LD.

b. Company HD has a higher times interest earned (TIE) ratio than Company LD.

c. Company HD has a higher return on equity (ROE) than Company LD, and its risk, as measured by the standard deviation of ROE, is also higher than LD’s.

d. The two companies have the same ROE.

e. Company HD’s ROE would be higher if it had no debt.

5. Which of the following statements is CORRECT?

a. Generally, debt-to-total-assets ratios do not vary much among different industries, although they do vary among firms within a given industry.

b. Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries.

c. Drug companies (prescription, not illegal!) generally have high debt-to-equity ratios because their earnings are very stable and, thus, they can cover the high interest costs associated with high debt levels.

d. Wide variations in capital structures exist both between industries and among individual firms within given industries. These differences are caused by differing business risks and also managerial attitudes.

e. Since most stocks sell at or very close to their book values, book value capital structures are almost always adequate for use in estimating firms’ costs of capital.

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