Calculation – Rate of Return for Stocks and Bonds

Calculation – Rate of Return for Stocks and Bonds

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Running head: CALCULATION – RATE OF RETURN FOR STOCKS AND BONDS

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CALCULATION – RATE OF RETURN FOR STOCKS AND BONDS

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Calculation – Rate of Return for Stocks and Bonds

Stock Valuation

1. “A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.”

1a) Percentage total return = (Dividends paid + Change in market value) / Initial stock price

Percentage total return = ($2 + ($125-$100))/ $100 = $27 / $100 = 0.27 or 27%

1b) Capital gains yield = (Ending share price – Initial share price)/Initial share price

Capital gains yield = ($125 – $100) / $100 = $25 / $100 = .25 or 25%

1c) Dividend yield = Dividend per share earn during the year / the initial stock price

Dividend yield = $2.00 / $100 = 0.02 or 2%

Total Return

2. “You bought a share of 4 percent preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?”

Total return = (Dividend paid + Change in market value) / Initial stock price

Total return = ((4% x $100) + ($120 – $100)) / $100 = ($4 + $20) / $100 = 0.24 or 24%

CAPM

3. “A stock of a beta of 1.20 the expected market rate of return is 12% and a risk-free rate of 5 percent. What is the expected rate of return of the stock?”

Expected rate of return = Risk-free rate + (Beta x (Expected market rate – Risk-free rate))

Expected rate of return = 5% + (1.20 x (12% – 5%) = 5% + (1.20 x 7%) = 5% + 8.4%

Expected rate of return = 13.4%

WACC

4. “The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company’s weighted average cost of capital (WACC)?”

WACC = (Weight of Equity x Cost of Equity x (1 – Tax rate)) + (Weight of Debt x Cost of debt)

WACC = (80% x 12% x (1 – 30%)) + (20% x 7%) = (6.72% + 1.4%) = 8.12%

FLOTATION COSTS

5. “Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10 percent. The flotation cost on new debt is 4 percent. What is the initial cost of the plant if the company raises all equity externally?”

% of Debt = 0.75 / (1+0.75) = 42.86%

% of Equity = 100% – % of Debt = 100% – 42.86% = 57.14%

Plant funded through debt: 42.86% x $125 million = $53,575,000

Flotation cost on Debt = $53,575,000 x 4% = $2,143,000

Plant funded through equity: 57.14% x $125 million = $71,425,000

Flotation cost on equity = $71,425,000 x 10% = $7,142,500

Total Flotation cost = $2,143,000 + $7,142,500 = $9,285,5000

Initial Cost = $125,000,000 + $9,285,5000 = $134,285,500

Business Case Study On Hacking Into Harvard

Case Study 1

Hacking into Harvard

EVERYONE WHO HAS EVER APPLIED FOR admission to a selective college or who has been interviewed for a highly desired job knows the feeling of waiting impatiently to learn the result of one’s application. So it’s not hard to identify with those applicants to some of the nation’s most prestigious MBA programs who thought they had a chance to get an early glimpse at whether their ambition was to be fulfilled. While visiting a Businessweek Online message board, they found instructions, posted by an anonymous hacker, explaining how to find out what admission decision the business schools had made in their case. Doing so wasn’t hard. The universities in question—Harvard, Dartmouth, Duke, Carnegie Mellon, MIT, and Stanford—used the same application software from Apply Yourself, Inc. Essentially, all one had to do was change the very end of the applicant-specific URL to get to the supposedly restricted page containing the verdict on one’s application. In the nine hours it took Apply Yourself programmers to patch the security flaw after it was posted, curiosity got the better of about 200 applicants, who couldn’t resist the temptation to discover whether they had been admitted.19

Some of them got only blank screens. But others learned that they had been tentatively accepted or tentatively rejected. What they didn’t count on, however, were two things: first, that it wouldn’t take the business schools long to learn what had happened and who had done it and, second, that the schools in question were going to be very unhappy about it. Harvard was perhaps the most outspoken. Kim B. Clark, dean of the business school, said, “This behavior is unethical at best—a serious breach of trust that cannot be countered by rationalization.” In a similar vein, Steve Nelson, the executive director of Harvard’s MBA program, stated, “Hacking into a system in this manner is unethical and also contrary to the behavior we expect of leaders we aspire to develop.”

It didn’t take Harvard long to make up its mind what to do about it. It rejected all 119 applicants who had attempted to access the information. In an official statement, Dean Clark wrote that the mission of the Harvard Business School “is to educate principled leaders who make a difference in the world. To achieve that, a person must have many skills and qualities, including the highest standards of integrity, sound judgment and a strong moral compass—an intuitive sense of what is right and wrong. Those who have hacked into this web site have failed to pass that test.” Carnegie Mellon and MIT quickly followed suit. By rejecting the ethically challenged, said Richard L. Schmalensee, dean of MIT’s Sloan School of Management, the schools are trying to “send a message to society as a whole that we are attempting to produce people that when they go out into the world, they will behave ethically.”

Duke and Dartmouth, where only a handful of students gained access to their files, said they would take a case-by-case approach and didn’t publicly announce their individualized determinations. But, given the competition for places in their MBA programs, it’s a safe bet that few, if any, offending applicants were sitting in classrooms the following semester. Forty-two applicants attempted to learn their results early at Stanford, which took a different tack. It invited the accused hackers to explain themselves in writing. “In the best case, what has been demonstrated here is a lack of judgment; in the worst case, a lack of integrity,” said Derrick Bolton, Stanford’s director of MBA admissions. “One of the things we try to teach at business schools is making good decisions and taking responsibility for your actions.” Six weeks later, however, the dean of Stanford Business School, Robert Joss, reported, “None of those who gained unauthorized access was able to explain his or her actions to our satisfaction.” He added that he hoped the applicants “might learn from their experience.”

Given the public’s concern over the wave of corporate scandals in recent years and its growing interest in corporate social responsibility, business writers and other media commentators warmly welcomed Harvard’s decisive response. But soon there was some sniping at the decision by those claiming that Harvard and the other business schools had overreacted. Although 70 percent of Harvard’s MBA students approved the decision, the undergraduate student newspaper, The Crimson, was skeptical. “HBS [Harvard Business School] has scored a media victory with its hard-line stance,” it said in an editorial. “Americans have been looking for a sign from the business community, particularly its leading educational institutions, that business ethics are a priority. HBS’s false bravado has given them one, leaving 119 victims in angry hands.”

As some critics pointed out, Harvard’s stance overlooked the possibility that the hacker might have been a spouse or a parent who had access to the applicant’s password and personal identification number. In fact, one applicant said that this had happened to him. His wife found the instructions at Businessweek Online and tried to check on the success of his application. “I’m really distraught over this,” he said. “My wife is tearing her hair out.” To this, Harvard’s Dean Clark responds, “We expect applicants to be personally responsible for the access to the website, and for the identification and passwords they receive.”

Critics also reject the idea that the offending applicants were “hackers.” After all, they used their own personal identification and passwords to log on legitimately; all they did was to modify the URL to go to a different page. They couldn’t change anything in their files or view anyone else’s information. In fact, some critics blamed the business schools and Apply Yourself more than they did the applicants. If those pages were supposed to be restricted, then it shouldn’t have been so easy to find one’s way to them.

In an interview, one of the Harvard applicants said that although he now sees that what he did was wrong, he wasn’t thinking about that at the time—he just followed the hacker’s posted instructions out of curiosity. He didn’t consider what he did to be “hacking,” because any novice could have done the same thing. “I’m not an IT person by any stretch of the imagination,” he said. “I’m not even a great typist.” He wrote the university a letter of apology. “I admitted that I got curious and had a lapse in judgment,” he said. “I pointed out that I wasn’t trying to harm anyone and wasn’t trying to get an advantage over anyone.” Another applicant said that he knew he had made a poor judgment but he was offended by having his ethics called into question. “I had no idea that they would have considered this a big deal.” And some of those posting messages at Businessweek Online and other MBA-related sites believe the offending applicants should be applauded. “Exploiting weaknesses is what good business is all about. Why would they ding you?” wrote one anonymous poster.

Dean Schmalensee of MIT, however, defends Harvard and MIT’s automatically rejecting everyone who peeked “because it wasn’t an impulsive mistake.” “The instructions are reasonably elaborate,” he said. “You didn’t need a degree in computer science, but this clearly involved effort. You couldn’t do this casually without knowing that you were doing something wrong. We’ve always taken ethics seriously, and this is a serious matter.” To those applicants who say that they didn’t do any harm, Schmalensee replies, “Is there nothing wrong with going through files just because you can?”

To him and others, seeking unauthorized access to restricted pages is as wrong as snooping through your boss’s desk to see whether you’ve been recommended for a raise. Some commentators, however, suggest there may be a generation gap here. Students who grew up with the Internet, they say, tend to see it as a wide-open territory and don’t view this level of web snooping as indicating a character flaw.

2 pg. MLA paper, three or more source

1. Suppose that you had been one of the MBA applicants who stumbled across an opportunity to learn your results early. What would you have done, and why? Would you have considered it a moral decision? If so, on what basis would you have made it?

Statistical Analysis Report

QSO 510 Milestone Two Guidelines and Rubric The final project for this course is the creation of a statistical analysis report. Each day, management professionals are faced with multiple decisions affecting various aspects of the operation. The ability to use data to drive decisions is an essential skill that is useful in any facet of an operation. The dynamic environment offers daily challenges that require the talents of the operations manager; working in this field is exciting and rewarding. In Module Seven, you will submit your selection of statistical tools and data analysis, which are critical elements III and IV of your final project. You will submit a 3- to 4-page paper and a spreadsheet that provides justification for the appropriate statistical tools needed to analyze the company’s data. Specifically, the following critical elements must be addressed:

III. Identify statistical methods to collect data: A. Identify the appropriate statistical methods that you will use to perform your analysis. What are your statistical assumptions concerning the

data that led you to selecting the methods? In other words, why did you select this method for statistical analysis? B. Justify why you chose these methods to analyze the data. Be sure to include how these methods will help predict the use of the data in driving

decisions using cited evidence.

IV. Data-Driven Decisions to determine the appropriate decision for the identified problem: A. Outline the process needed to utilize your statistical analysis to reach a decision regarding the given problem. B. Explain how data mining is used to develop a solution to the case. In your response, consider the concepts of metadata. C. Explain if the problem is a structured or unstructured problem. D. Assess how the variables have potential for answering the problem.

Guidelines for Submission: Your paper must be submitted as a 3- to 4-page Microsoft Word document and attached spreadsheet with double spacing, 12-point Times New Roman font, one-inch margins, and at least six sources cited in APA format.

 

 

 

 

Rubric Critical Elements Proficient (100%) Needs Improvement (70%) Not Evident (0%) Value

Statistical Methods: Statistical Methods

Identifies the appropriate statistical methods used to perform statistical analysis, including statistical assumptions

Identifies a statistical methods used to perform statistical analysis but either the methods are not the most appropriate to use or discussion lacks statistical assumptions

Does not determine statistical methods

10

Statistical Methods: Justify Methods

Justifies why the methods chosen are the most appropriate for analysis of this data and includes how these methods would help predict the use of the data in driving decisions using cited evidence

Justifies why the methods chosen are the most appropriate for the analysis but justification is either illogical or cursory or does not include how they would help predict the use of data in driving decisions or does not use or provide cited evidence

Does not justify why methods were chosen

20

Data-Driven Decisions:

Process

Outlines the process needed to utilize the statistical analysis

Outlines the process needed to utilize the statistical analysis but steps are either inappropriate or overgeneralized

Does not outline the process needed to utilize the statistical analysis

10

Data-Driven Decisions: Data

Mining

Explains how data mining is used to develop a solution to the case, considering concepts of metadata

Explains how data mining is used to develop a solution to the case but explanation does not consider concepts of metadata, is inappropriate, or cursory

Does not offer an explanation why data mining is used to develop a solution in the case

20

Data-Driven Decisions: Structured

vs. Unstructured

Explains if the problem is a structured or unstructured problem

Explains if the problem is a structured or unstructured problem but explanation contains inaccuracies or is cursory

Does not explain if the problem is a structured or unstructured problem

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Data-Driven Decisions: Variables

Assesses how the variables have potential for answering the problem

Assess how the variables have potential for answering the problem but assessment contains inaccuracies or is cursory

Does not assess how the variables have potential for answering the problem

15

Articulation of Response

 

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

10

Earned Total 100%

CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS, INC.

CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDS, INC.

Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company’s financial records are not well maintained.

The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven’t required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to other sellers.

Tad’s expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year.

After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the following information:

 2014                                       2015
Cost of goods sold                                       $169,619                               $248,263
Cash                                                                28,372                                     42,865                         Depreciation                                                    55,50662,738
Interest expense 12,06713,831
Selling & administrative expenses 38,668 50469
Accounts payable 20,14334,091
Net fixed assets 244,881298,350
Sales385,724470,172
Accounts receivable 20,10426,078
Notes payable 22,85524,955
Long-term debt 123,607140,000
Inventory 38,70652,057
New equity      0                                     15,000

 

Sunset Boards currently pays out 40 percent of net income as dividends to Tad and the other original investors, and has a 30 percent tax rate. You are Christina’s assistant, and she has asked you to prepare the following:

 

Instructions                                                                     

  1. In an Excel document, prepare the following financial statements for the mini-case “Cash Flows and Financial Statements at Sunset Boards, Inc.” on pages 47 and 48 of the textbook:
    1. Income Statement for 2014 and 2015
    2. Balance Sheet for 2014 and 2015
  2. In the Excel document, also calculate:
    1. the Operating Cash Flow for each year
    2. the Cash Flow from Assets for 2015
    3. the Cash Flow to Creditors for 2015
    4. the Cash Flow to Stockholders for 2015
  1. Tad Marks, the company’s founder, is considering expanding the business, which will require a substantial investment.  Evaluate the financial statements you have developed and Sunset Board’s cash flow.
  2. In your Excel document or a separate Word document, write a paragraph explaining whether you feel expansion would be a wise choice and why.