SOLUTION: Carlsberg in Emerging Markets Case Study

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SOLUTION: American Express: Bank 2.0 Case Study

Complete the following discussion questions for Case 2: American Express: Bank 2.

  1. Define American Express’s overall business-level strategy.  
  2. Does  Bank 2.0 fit into American Express’s overall business-level strategy?
  3. How does Bank 2.0 stand up against the competitors in the industry?
  4. What insights does a SWOT analysis reveal about how Bank 2.0 should be positioned in the future?
  5. Integrate the results of the analysis into recommendations for  growing the business and combating competitive pressures to maximize  performance.

SOLUTION: BP in Russia: Bad Partners or Bad Partnerships? (A) Case Study

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SOLUTION: American Express: Bank 2.0 Case Study

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SOLUTION: Kindle Fire: Amazon’s Heated Battle for the Tablet Market Case Study

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SOLUTION: Capital Structure Decision Mini-Case

Assume you have just been hired as business manager of PizzaPalace, a pizza restaurant located adjacent to campus.  The company’s EBIT was $500,000 last year, and since the university’s enrollment is capped, EBIT is expected to remain constant (in real terms) over time.  Since no expansion capital will be required, PizzaPalace plans to pay out all earnings as dividends.  The management group owns about 50 percent of the stock, and the stock is traded in the over-the-counter market.

The firm is currently financed with all equity; it has 100,000 shares outstanding; and P0 = $25 per share.  When you took your MBA Corporate Finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt.  When you suggested this to your new boss, he encouraged you to pursue the idea.  As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures:

% Financed With Debt Rd
0%
20 8
30 8.5
40 10
50 12

If the company were to recapitalize, debt would be issued, and the funds received would be used to repurchase stock. PizzaPalace is in the 40 percent state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free rate is 6 percent, and the market risk premium is 6 percent. Using the free cash flow valuation model, show the only avenues by which capital structure can affect value.

  1. What is business risk? What factors influence a firm’s business risk?
  2. What is operating leverage, and how does it affect a firm’s business risk? Show the operating break-even point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10.
  3. Now, to develop an example that can be presented to PizzaPalace’s management to illustrate the effects of financial leverage, consider two hypothetical firms: Firm U, which uses no debt financing, and Firm L, which uses $10,000 of 12% debt. Both firms have $20,000 in assets, a 40% tax rate, and an expected EBIT of $3,000.
  4. Construct partial income statements, which start with EBIT, for the two firms.
  5. Now calculate ROE for both firms.
  6. What does this example illustrate about the impact of financial leverage on ROE
  7. Explain the difference between financial risk and business risk.
  8. What happens to ROE for Firm U and Firm L if EBIT falls to $2,000? What does this imply about the impact of leverage on risk and return?
  9. What does capital structure theory attempt to do? What lessons can be learned from capital structure theory? Be sure to address the MM models.
  10. What does the empirical evidence say about capital structure theory? What are the implications for managers?
  11. With the preceding points in mind, now consider the optimal capital structure for PizzaPalace.
  12. For each capital structure under consideration, calculate the levered beta, the cost of equity, and the WACC.
  13. Now calculate the corporate value for each capital structure.
  14. Describe the recapitalization process and apply it to PizzaPalace. Calculate the resulting value of the debt that will be issued, the resulting market value of equity, the price per share, the number of shares repurchased, and the remaining shares. Considering only the capital structures under analysis, what is Pizza Palace’s optimal capital structure?
  15. Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of L’s operations is $4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of $2 million. Finally, assume that L’s volatility, σ, is 0.60 and that the risk-free rate rRF is 6%.
  16. What is the value of L’s stock for volatilities between 0.20 and 0.95? What incentives might the manager of L have if she understands this relationship?
  17. What might debtholders do in response?
  18. How do companies manage the maturity structure of their debt?

Solutions

What is business risk? What factors influence a firm’s business risk?

Businsess risk is uncertainty about EBIT.  Factors that influence business risk include: uncertainty about demand (unit sales); uncertainty about output prices; uncertainty about input costs; product and other types of liability; degree of operating leverage (DOL).

What is operating leverage, and how does it affect a firm’s business risk? Show the operating break-even point if a company has fixed costs of $200, a sales price of $15, and variable costs of $10.

Operating leverage is the change in EBIT

SOLUTION Corporate Governance Mini-case

Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually to go nationwide. At some point, hopefully sooner rather than later, you plan to go public with an IPO and then to buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer for yourself, and potential investors, the following questions.

  1. What is an agency relationship? When you first begin operations, assuming you are the only employee and only your money is invested in the business, would any agency conflicts exist? Explain your answer
  2. If you expanded and hired additional people to help you, might that give rise to agency problems?
  3. Suppose you need additional capital to expand and you sell some stock to outside investors. If you maintain enough stock to control the company, what type of agency conflict might occur?
  4. Suppose your company raises funds from outside lenders. What type of agency costs might occur? How might lenders mitigate the agency costs?
  5. Suppose your company is very successful and you cash out most of your stock and turn the company over to an elected board of directors. Neither you nor any other stockholders own a controlling interest (this is the situation at most public companies). List six potential managerial behaviors that can harm a firm’s value.
  6. What is corporate governance? List five corporate governance provisions that are internal to a firm and are under its control.
  7. What characteristics of the board of directors usually lead to effective corporate governance?
  8. List three provisions in the corporate charter that affect takeovers.
  9. Briefly describe the use of stock options in a compensation plan. What are some potential problems with stock options as a form of compensation?
  10. What is block ownership? How does it affect corporate governance?
  11. Briefly explain how regulatory agencies and legal systems affect corporate governance.

Solutions

 

What is an agency relationship? When you first begin operations, assuming you are the only employee and only your money is invested in the business, would any agency conflicts exist? Explain your answer

An agency relationship arises whenever one or more individuals, called principals, (1) hires another individual or organization, called an agent, to perform some service and (2) then delegates decision-making authority to that agent. No agency problem would exist. 

 

Marx Manifesto of the Communist Party Essay

Read the attached article from Marx “Manifesto of the Communist Party” and write 700 words on the following prompts;

  1. Many historians have observed that the real hero of Marx’s COMMUNIST MANIFESTO seems actually to be the capitalist bourgeoisie. Who are the ‘bourgeoisie’ according to Marx? How does he view their historical role; what does he take them to have achieved? On the other hand, why does he think the capitalist system (like all others in History so far) to be one inherently and unavoidably based on class-division and class-struggle?
  2. Marx thinks that industrial society is the first type of society in human history that will allow humanity to move beyond class divisions. He says that ‘industrial capitalism’ has a fundamental contradiction within it; Can you detect what he takes this contradiction to be and what it has to do with the ‘proletarians’ and their condition in capitalism?
  3. Ultimately, both Capitalist and Communist societies, as Marx sees it, are ‘industrial’ societies; that is, they are fundamentally ‘growth’ societies. For Marx, ‘economic growth’ was the universal solution that would enable the achievement of the perfect society. How do you view the role of ‘economic growth’ in contemporary society? Should we still consider it the universal solution?

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SOLUTION: Week #3 Discussion

  1. Examine the concept of time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general.
  2. Examine the pros and cons of a sinking fund from the viewpoint of both a firm and its bondholders. Determine the fundamental manner in which this knowledge could be helpful to a financial manager. Provide a rationale for your response.

Examine the concept of time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general.

The time value of money is the idea that a particular sum of money in your hand today is worth more than the same sum at some future date. Basically, time value is a concept that a dollar that you have today is worth more than the promise or expectation that you will receive a dollar in the future. Money that should hold today is worth more because you can invest it and earn interest.

SOLUTION: Norwood Waterworks ,Emco Corporation: Changing the Culture

Case study solution for Norwood Waterworks ,Emco Corporation: Changing the Culture. Order now and will get it done within 24hrs. We are the #1 provider of premium case study solutions. Prices start at $15/page. Guaranteed delivery within 24hr, Absolutely no plagiarism, Qualified academic writers, Excellent customer support

Questions:

  1. Assess Lumby ́s situation. What is he trying to do at Norwood?
  2. Review Norwood as a business from an organizational perspective. What are your conclusions about the state of the company?
  3. Evaluate Lumby ́s actions so far. Do you agree or disagree with them?
  4. What are Lumby ́s challenge and opportunities going forward?
  5. What plan of action would you recommend to Lumby?