For initial public offerings of common stock, 2017 was a slow year, with about $24.53 billion raised by the process. Relatively few of the 108 firms involved paid cash dividends. Why do you think that most chose not to pay cash dividends?
> Redo Problem 26 using sales growth rates of 30 and 35 percent in addition to 20 percent. Assume the firm wishes to maintain its debt-equity ratio. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine th
> Redo Problem 24 using sales growth rates of 15 and 25 percent in addition to 20 percent. Illustrate graphically the relationship between EFN and the growth rate, and use this graph to determine the relationship between them. At what growth rate is the EF
> In Problem 24, suppose the firm wishes to keep its debt-equity ratio constant. What is EFN now?Data from Problem 24:The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest expense will r
> In the previous problem, suppose the firm was operating at only 80 percent capacity in 2017. What is EFN now?Data from Problem 24The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest e
> The most recent financial statements for Crosby, Inc., follow. Sales for 2018 are projected to grow by 20 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current
> The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.3 million in annual p
> Bismark Co. is in the process of considering a change in its terms of sale. The current policy is cash only; the new policy will involve one period’s credit. Sales are 25,000 units per period at a price of $350 per unit. If credit is offered, the new pri
> In our discussion of the SML, we defined alpha. What does alpha measure? What alpha would you like to see on your investments?
> Specialized ratios are sometimes used in specific industries. For example, the so-called book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every $100 worth of chips shipped over some period, only $93
> You are CEO of Titan Industries and have just been awarded a large number of employee stock options. The company has two mutually exclusive projects available. The first project has a large NPV and will reduce the total risk of the company. The second pr
> Discuss the IRS criteria for determining whether or not a lease is tax deductible. In each case, give a rationale for the criterion.
> Referring back to the Boeing example used at the beginning of the chapter, note that we suggested that Boeing’s stockholders probably didn’t suffer as a result of the reported loss. What do you think was the basis for our conclusion?
> Some companies, such as Alphabet, have created classes of stock with no voting rights at all. Why would investors buy such stock?
> Common advice on Wall Street is “Keep your alpha high and your beta low.” Why?
> Often, junk bonds are not rated. Why?
> Discuss the accounting criteria for determining whether or not a lease must be reported on the balance sheet using the accounting rules in place before 2019. In each case, give a rationale for the criterion.
> What does the lack of transparency in the bond market imply for bond investors?
> Proponents of behavioral finance use three concepts to argue that markets are not efficient. What are these arguments?
> Some people argue that the efficient markets hypothesis cannot explain the 1987 market crash or the high price-to-earnings ratio of Internet stocks during the late 1990s. What alternative hypothesis is currently used for these two phenomena?
> We discussed five international capital market relationships: relative PPP, IRP, UFR, UIP, and the international Fisher effect. Which of these would you expect to hold most closely?
> What is the option to expand? Explain why we underestimate NPV if we ignore this option.
> What is the option to abandon? Explain why we underestimate NPV if we ignore this option.
> Historically, the U.S. tax code treated dividend payments made to shareholders as ordinary income. Thus, dividends were taxed at the investor’s marginal tax rate, which was as high as 38.6 percent in 2002. Capital gains were taxed at a capital gains tax
> Suppose a firm has a book balance of $2 million. On the bank’s website, the cash manager finds out that the bank balance is $2.5 million. What is the situation here? If this is an ongoing situation, what ethical dilemma arises?
> Suppose you own a home that costs $200,000 and you buy homeowner’s insurance to cover your house against fire, wind, tornados, and other disasters. One way to view your insurance is that you purchased an option. What type of option is the homeowner’s pol
> Historically, the U.S. tax code treated dividend payments made to shareholders as ordinary income. Thus, dividends were taxed at the investor’s marginal tax rate, which was as high as 38.6 percent in 2002. Capital gains were taxed at a capital gains tax
> In 2016, activist investor Elliott Management was pressuring Marathon Petroleum to split up the company. Elliott felt that Marathon should sell off its Speedway gas and retail stores. Why might investors prefer that a company split into multiple companie
> In Chapter 10, we discussed Porsche’s launch of its new Cayenne. Suppose sales of the Cayenne go extremely well and Porsche is forced to expand output to meet demand. Porsche’s action in this case would be an example of exploiting what kind of option?
> In February 2017, Air Lease Corporation (ALC) announced a deal to lease five new Boeing 787-9 passenger aircraft to China Southern Airlines. ALC had the aircraft on purchase order from Boeing and planned to deliver three of the planes to China Southern i
> In February 2017, Air Lease Corporation (ALC) announced a deal to lease five new Boeing 787-9 passenger aircraft to China Southern Airlines. ALC had the aircraft on purchase order from Boeing and planned to deliver three of the planes to China Southern i
> In evaluating the Cayenne, what do you think Porsche needs to assume regarding the substantial profit margins that exist in this market? Is it likely they will be maintained as the market becomes more competitive, or will Porsche be able to maintain the
> Porsche was one of the last manufacturers to enter the sports utility vehicle market. Why would one company decide to proceed with a product when other companies, at least initially, decide not to enter the market?
> In evaluating the Cayenne, would you use the term erosion to describe the possible damage to Porsche’s reputation?
> What is the value of a put option at maturity? Based on your answer, what is the intrinsic value of a put option?
> Take a look back at the times interest earned (TIE) ratio we discussed in Chapter 3. For interest paid to be fully deductible by a company after the Tax Cuts and Jobs Act of 2017, what must be true about this ratio? Assume the company has no interest inc
> Suppose you are looking at a company with no change in capital spending, no change in net working capital, and no depreciation. Since the company is not increasing its assets, EBIT is constant. What is the value of the company?
> Shank Manufacturing, Inc., has recently installed a just-in-time (JIT) inventory system. Describe the effect this is likely to have on the company’s carrying costs, shortage costs, and operating cycle.
> Suppose the exchange rate for the Swiss franc is quoted as SF 1.50 in the spot market and SF 1.53 in the 90-day forward market. a. Is the dollar selling at a premium or a discount relative to the franc? b. Does the financial market expect the franc to st
> The protective put strategy we discussed in the chapter is sometimes referred to as stock price insurance. Why?
> What impact does an increase in the volatility of the underlying stock’s return have on an option’s value? Explain.
> Given that AK Steel was up by about 359 percent for 2016, why didn’t all investors hold this stock?
> You own stock in the Hendrix Guitar Company. The company has implemented a plan to award employee stock options. As a shareholder, does the plan benefit you? If so, what are the benefits?
> Natural resource extraction facilities (such as oil wells or gold mines) provide a good example of the value of the option to suspend operations. Why?
> Acquiring firm stockholders seem to benefit very little from takeovers. Why is this finding a puzzle? What are some of the reasons offered in explanation?
> In the chapter, we presented an example where you have lost $78 and are given the opportunity to make a wager in which you have an 80 percent chance that your loss will increase to $100 and a 20 percent chance that your loss will decrease to $0. Using th
> The following material represents the cover page and summary of the prospectus for the initial public offering of the Pest Investigation Control Corporation (PICC), which is going public tomorrow with a firm commitment initial public offering managed by
> In February 2017, Air Lease Corporation (ALC) announced a deal to lease five new Boeing 787-9 passenger aircraft to China Southern Airlines. ALC had the aircraft on purchase order from Boeing and planned to deliver three of the planes to China Southern i
> How could overconfidence affect the financial manager of the firm and the firm’s shareholders?
> Define each of the following terms: a. Greenmail b. White knight c. Golden parachute d. Crown jewels e. Shark repellent f. Corporate raider g. Poison pill h. Tender offer i. Leveraged buyout (LBO)
> You have been at your job with S&S Air for a week now and have decided you need to sign up for the company’s 401(k) plan. Even after your discussion with Audrey Sanborn, the Bledsoe Financial Services representative, you are still unsure as to which inve
> In 2009 and 2010, investment banks were under fire for interest rate swaps sold to municipalities and nonprofits. For example, California’s water resource authority paid about $305 million, North Carolina paid about $60 million, and Harvard University pa
> With some insurance policies, the value of the asset to be replaced is the current market value. For example, if you bought a couch five years ago for $1,000, and the current value of the couch is $300, you would only get $300 if the couch were destroyed
> You are at work when a co-worker excitedly comes to your desk and shows you the scenario analysis that he has just completed for a potential new project. All three scenarios show a positive NPV. He states, “We have to take this project!” What is your ini
> What are the difficulties in using the PE ratio to value stock?
> In the chapter, we mentioned that many companies have been under pressure to declassify their boards of directors. Why would investors want a board to be declassified? What are the advantages of a classified board?
> In the chapter, we gave several examples of so-called payday loans. As you saw, the interest rates on these loans can be extremely high and are even called predatory by some. Do you think such high interest loans are ethical? Why or why not?
> In 2016, automobile manufacturer BMW completed its $1 billion investment to increase production at its South Carolina plant by 50 percent. BMW apparently felt that it would be better able to compete and create value with U.S-based facilities. Other compa
> For each of the following scenarios, discuss whether profit opportunities exist from trading in the stock of the firm under the conditions that (1) the market is not weak form efficient, (2) the market is weak form but not semi-strong form efficient, (
> In 2014, Japanese liquor company Suntory Holdings Ltd. acquired U.S. bourbon maker Beam Inc., for $14 billion. Is this a horizontal or vertical acquisition? How do you suppose Beam’s nationality affected Suntory’s decision?
> Why might a person’s social class not change when he or she earns more money?
> What are some industries that stand to benefit most from the increasing affluence and vitality of the senior market?
> What is income inequality, and why is it a problem?
> What is conspicuous consumption? Give a current example.
> What is an example of a meme?
> How do you differentiate between “old money” versus “nouveau riche” consumers?
> What is a taste culture?
> Give an example of a marketer who uses the principle of binary opposition.
> Define a cultural gatekeeper, and give three examples.
> What is deethnicization? Give an example.
> What is a ritual? Describe three kinds of rituals and provide an example of each.
> What one variable is the best indicator of social class? What are some other important indicators?
> Go to www.seventeen.com/cosmogirl and www.cosmopolitan.com. How are these two sites different? What are their two target markets? What messages and values are being transmitted by the two websites? How can age and gender be combined by marketers to ensur
> Who are acculturation agents? Give two examples.
> What is the difference between a high-context and a low-context culture? What is an example of this difference?
> Go to www.alloy.com and www.teensplatform.com. These are portals geared toward teens. How do these sites differ from Yahoo or Google for information search, ecommerce, and the presentation of other information?
> Why is it difficult to identify consumers in terms of their ethnic subculture membership?
> Define discretionary income.
> Go to www.burberry.com. How does this prestige fashion label use social class and status to sell its products? Comment on their approach. Does this approach make you want to buy such products? Explain.
> Have groups find good and bad examples of advertising targeted toward “seasoned citizens.” To what extent do these ads stereotype the elderly? Do you think that the elderly would like or resent the implications? Are there any elements in these ads that m
> Assign student groups to visit two local supermarkets to find out if either has segmented their market based on the subculture or ethnic background of their customers. How many subcultures does each supermarket recognize? Have the students talk to the st
> Who are innovators? Early adopters? Laggards?
> What is a cultural formula? Give an example.
> Describe the difference between arts and crafts.
> Ask a student to bring in an ad in which the brand being marketed was at one time a status symbol, but fell out of fashion for a time (e.g., Cadillac, Parker Pen, Izod-Lacoste, etc.). Have the student discuss whether the ad still attempts to create that
> What is culture? List three dimensions social scientists used to describe a culture and give an example of each.
> Why are Asian Americans an attractive market segment? Why can they be difficult for marketers to reach?
> Describe the processes involved when a person assimilates into a new host culture.
> What is acculturation? How does it differ from enculturation?
> Why are Hispanic American consumers attractive to marketers?
> What are tweens, and why are so many marketers interested in them?
> What is an age cohort, and why is it of interest to marketers?
> What is the FLC, and why is it important to marketers?
> What is a nuclear family, and how is it different from an extended family?
> Describe what we men by the term mass class and summarize what causes this phenomenon.
> Go to the following: www.bet.com, www.jetmag.com, www.ebony.com, and www.vibe.com. What do these African American interest websites have in common? How do they use desire for ethnicity to their advantage? Would members of other races be attracted to thes
> What is a current example of parody display?
> Describe the difference between a restricted and an elaborated code. Give an example of each.
> Define social mobility and describe the different forms it takes.
> What is social class? Is it different from income and if so how?
> What is a pecking order?
