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Question: Seal Polymer Industries sold two freight containers


Seal Polymer Industries sold two freight containers of latex gloves to Med-Express, Inc., a company based in North Carolina. When Med-Express failed to pay the $104,000 owed for the gloves, Seal Polymer sued in an Illinois court and obtained a judgment against Med-Express. Med-Express argued that it did not have minimum contacts with Illinois and therefore the Illinois judgment based on personal jurisdiction was invalid. Med-Express stated that it was incorporated under North Carolina law, had its principal place of business in North Carolina, and therefore had no minimum contacts with Illinois. Was this statement alone sufficient to prevent the Illinois judgment from being collected against Med-Express in North Carolina? Why or why not?


> Explain what is meant by business risk and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital? Explain.

> Given that First Solar was up by over 796 percent for 2007, why didn’t all investors hold this stock?

> Which of the following most accurately describes a Yankee bond? a. A bond issued by General Motors in Japan with the interest payable in U.S. dollars. b. A bond issued by General Motors in Japan with the interest payable in yen. c. A bond issued by Toyo

> Suppose a firm has a book balance of $2 million. At the automatic teller machine (ATM), 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?

> In the chapter opening, we discussed the enormous cash positions of several companies. Why would firms such as these hold such large quantities of cash?

> It is sometimes argued that excess cash held by a firm can aggravate agency problems (discussed in Chapter 1) and, more generally, reduce incentives for shareholder wealth maximization. How would you frame the issue here?

> Loftis 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.

> Electronic Timing, Inc. (ETI), is a small company founded 15 years ago by electronics engineers Tom Miller and Jessica Kerr. ETI manufactures integrated circuits to capitalize on the complex mixed-signal design technology and has recently entered the mar

> 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

> Refer to the observed capital structures given in Table 16.7 of the text. What do you notice about the types of industries with respect to their average debt–equity ratios? Are certain types of industries more likely to be highly levera

> If increases in dividends tend to be followed by (immediate) increases in share prices, how can it be said that dividend policy is irrelevant?

> What are the implications of the efficient markets hypothesis for investors who buy and sell stocks in an attempt to “beat the market”?

> Some corporations, like one British company that offers its large shareholders free crematorium use, pay dividends in kind (that is, offer their services to shareholders at below-market cost). Should mutual funds invest in stocks that pay these dividends

> Why are the costs of selling equity so much larger than the costs of selling debt?

> On Tuesday, December 8, Hometown Power Co.’s board of directors declares a dividend of 75 cents per share payable on Wednesday, January 17, to shareholders of record as of Wednesday, January 3. When is the exdividend date? If a shareholder buys stock bef

> What is the impact of a stock repurchase on a company’s debt ratio? Does this suggest another use for excess cash?

> 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

> How is it possible that dividends are so important, but at the same time, dividend policy is irrelevant?

> 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, (3)

> In 1980, a certain assistant professor of finance bought 12 initial public offerings of common stock. He held each of these for approximately one month and then sold. The investment rule he followed was to submit a purchase order for every firm commitmen

> Ren-Stimpy International is planning to raise fresh equity capital by selling a large new issue of common stock. Ren-Stimpy is currently a publicly traded corporation, and it is trying to choose between an underwritten cash offer and a rights offering (n

> Indicate whether the following events might cause stocks in general to change price, and whether they might cause Big Widget Corp.’s stock to change price: a. The government announces that inflation unexpectedly jumped by 2 percent last month. b. Big Wi

> Eye tech Pharmaceuticals, Inc., a company that develops treatments for eye problems, went public in January 2004. Assisted by the investment bank Merrill Lynch, Eye tech sold 6.5 million shares at $21 each, thereby raising a total of $136.5 million. At t

> Eye tech Pharmaceuticals, Inc., a company that develops treatments for eye problems, went public in January 2004. Assisted by the investment bank Merrill Lynch, Eye tech sold 6.5 million shares at $21 each, thereby raising a total of $136.5 million. At t

> Eye tech Pharmaceuticals, Inc., a company that develops treatments for eye problems, went public in January 2004. Assisted by the investment bank Merrill Lynch, Eye tech sold 6.5 million shares at $21 each, thereby raising a total of $136.5 million. At t

> Why is underpricing not a great concern with bond offerings?

> What are the advantages of using the DCF model for determining the cost of equity capital? What are the disadvantages? What specific piece of information do you need to fi nd the cost of equity using this model? What are some of the ways in which you cou

> Why do noninvestment-grade bonds have much higher direct costs than investment-grade issues?

> Why do we use an after tax figure for cost of debt but not for cost of equity?

> Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 y

> In calculating the WACC, if you had to use book values for either debt or equity, which would you choose? Why?

> On the most basic level, if a firm’s WACC is 12 percent, what does this mean?

> Quality control leads to fewer defective products and fewer lawsuits. Consequently, managers know that quality control is important to their company’s long-term financial health. At the same time, the more quality control managers impose on their organiz

> Could U.S. companies that sold Chinese drywall to consumers also be held liable for damages? Why or why not?

> All liability suits against tobacco companies for causing lung cancer should be thrown out of court now and forever.

> The Russ College of Engineering and Technology of Ohio University announced in a press conference that it had found “rampant and flagrant plagiarism” in the theses of mechanical engineering graduate students. Faculty singled out for “ignoring their ethic

> Could Verost succeed in an action against Nuttall alleging that the company’s failure to maintain the forklift in a safe condition constituted negligence? Discuss.

> By what means did the plaintiff most likely discover the defendant’s studies of an alternative design for the door-latch system?

> If the public wants to change the policy outlined in this case, which branch of the government—and at what level—should be lobbied to make the change? Explain.

> What is discovery, and how does electronic discovery differ from traditional discovery?

> What is judicial review? How and when was the power of judicial review established?

> Each time a state legislature enacts a law that applies the assumption of risk doctrine to a particular sport, participants in that sport suffer.

> Stan Garner resides in Illinois and promotes boxing matches for SuperSports, Inc., an Illinois corporation. Garner created the promotional concept of the “Ages” fights—a series of three boxing matches pitting an older fighter (George Foreman) against a y

> Nellie Lumpkin, who suffered from dementia, was admitted to the Picayune Convalescent Center, a nursing home. Because of her mental condition, her daughter, Beverly McDaniel, signed the admissions agreement. It included a clause requiring the parties to

> LG Electronics, Inc., and nineteen other foreign companies participated in the global market for cathode ray tube (CRT) products, which were integrated as components in consumer goods, including television sets. These goods were sold for many years in h

> Betsy Faden worked for the U.S. Department of Veterans Affairs. Faden was removed from her position in April 2012 and was given until May 29 to appeal the removal decision. She submitted an appeal through the Merit Systems Protection Board’s e-filing sys

> What defenses to liability can be raised in a product liability lawsuit?

> Jessica Lester died from injuries suffered in an auto accident caused by the driver of a truck owned by Allied Concrete Co. Jessica’s widower, Isaiah, filed a suit against Allied for damages. The defendant requested copies of all of Isaiah’s Facebook pho

> Horton Automatics and the Industrial Division of the Communications Workers of America—the union that represented Horton’s workers—negotiated a collective bargaining agreement. If an employee’s discharge for a workplace-rule violation was submitted to ar

> Bruce Matthews played football for the Tennessee Titans. As part of his contract, he agreed to submit any dispute to arbitration. He also agreed that Tennessee law would determine all matters related to workers’ compensation. After Matthews retired, he f

> Advance Technology Consultants, Inc. (ATC), contracted with RoadTrac, LLC, to provide software and client software systems for products using global positioning satellite (GPS) technology being developed by RoadTrac. RoadTrac agreed to provide ATC with h

> Jack and Maggie Turton bought a house in Jefferson County, Idaho, located directly across the street from a gravel pit. A few years later, the county converted the pit to a landfill. The landfill accepted many kinds of trash that cause harm to the enviro

> A state legislature enacted a statute that required any motorcycle operator or passenger on the state’s highways to wear a protective helmet. Jim Alderman, a licensed motorcycle operator, sued the state to block enforcement of the law. Alderman asserted

> Can a state, in the interest of energy conservation, ban all advertising by power utilities if conservation could be accomplished by less restrictive means? Why or why not?

> Suppose that Gucci had not presented evidence that Huoqing made one actual sale through his Web site to a resident (the private investigator) of the court’s district. Would the court still have found that it had personal jurisdiction over Huoqing? Why or

> In the circumstances of this case, what procedures should govern the arbitration? Discuss.

> What are three types of product defects?

> One of the arguments against allowing sharia courts in the United States is that we would no longer have a common legal framework within our society. Do you agree or disagree? Why?

> The Sixth Amendment guarantees the accused a right of trial by an “impartial jury.” How does the use of wireless devices in the courtroom or research on the Internet threaten this right?

> Financing for the purchase of the property was conditioned on the bank’s review of Guido’s answers to the environmental questionnaire. How could the court conclude that the plaintiffs justifiably relied on misrepresentations made to the bank? Explain.

> Would the result in this case have been different if Taylor’s minor son, rather than Taylor herself, had been struck by the ball? Should courts apply the doctrine of assumption of risk to children? Discuss.

> Can the appropriation of an Internet domain name constitute conversion? Explain.

> What is the basic structure of the U.S. government?

> Where in the Constitution can the due process clause be found?

> What is the Bill of Rights? What freedoms does the First Amendment guarantee?

> What constitutional clause allows laws enacted by the federal government to take priority over conflicting state laws?

> What constitutional clause gives the federal government the power to regulate commercial activities among the various states?

> What are the elements of a cause of action in strict product liability?

> Elaine Sweeney went to Ragged Mountain Ski Resort in New Hampshire with a friend. Elaine went snow tubing down a run designed exclusively for snow tubers. No Ragged Mountain employees were present in the snow-tube area to instruct Elaine on the proper us

> In this age of the Internet, when people communicate via e-mail, tweets, social media, and Skype, is the concept of jurisdiction losing its meaning?

> Bento Cuisine is a lunch-cart business. It occupies a street corner in Texarkana, a city that straddles the border of Arkansas and Texas. Across the street—and across the state line, which runs down the middle of the street—is Rico’s Tacos? The two busin

> Why do we need special legislation designed to control foreign libel claims against U.S. citizens? Explain.

> Should domain name hosting companies be liable for revenge porn?

> Sue contracts with Tom to deliver a quantity of computers to Sue’s Computer Store. They disagree over the amount, the delivery date, the price, and the quality. Sue files a suit against Tom in a state court. Their state requires that their dispute be sub

> At the trial, after Sue calls her witnesses, offers her evidence, and otherwise presents her side of the case, Tom has at least two choices between courses of action. Tom can call his first witness. What else might he do?

> Legislation aimed at protecting people from themselves concerns the individual as well as the public in general. Protective helmet laws are just one example of such legislation. Should individuals be allowed to engage in unsafe activities if they choose

> What is the difference between the focus of a trial court and an appellate court?

> How are the courts applying traditional jurisdictional concepts to cases involving Internet transactions?

> What public policy assumptions underlie strict product liability?

> What are three alternative methods of resolving disputes?

> What is meant by strict liability? In what circumstances is strict liability applied?

> Identify the four elements of negligence.

> What is defamation? Name two types of defamation.

> What are two basic categories of torts?

> What is the purpose of tort law? What types of damages are available in tort lawsuits?

> Bret D’Auguste was an experienced skier when he rented equipment to ski at Hunter Mountain Ski Bowl in New York. When D’Auguste entered an extremely difficult trail, he noticed immediately that the surface consisted of ice with almost no snow. He tried t

> A water pipe bursts, flooding a Metal Fabrication Company utility room and tripping the circuit breakers on a panel in the room. Metal Fabrication contacts Nouri, a licensed electrician with five years’ experience, to check the damage and turn the breake

> Jana leaves her truck’s motor running while she enters a Kwik-Pik Store. The truck’s transmission engages, and the vehicle crashes into a gas pump, starting a fire that spreads to a warehouse on the next block. The warehouse collapses, causing its billbo

> Kim went to Ling’s Market to pick up a few items for dinner. It was a stormy day, and the wind had blown water through the market’s door each time it opened. As Kim entered through the door, she slipped and fell in the rainwater that had accumulated on t

> Can a manufacturer be held liable to any person who suffers an injury proximately caused by the manufacturer’s negligently made product?

> White Plains Coat & Apron Co. and Cintas Corp. are competitors. White Plains had five-year exclusive contracts with some of its customers. As a result of Cintas’s soliciting of business, dozens of White Plains’ customers breached their contracts and ente

> Charles Robison, an employee of West Star Transportation, Inc., was ordered to cover an unevenly loaded flatbed trailer with a 150-pound tarpaulin. The load included uncrated equipment and pallet crates of different heights, about thirteen feet off the g

> Ronald Rawls and Zabian Bailey were in an auto accident in Bridgeport, Connecticut. Bailey rear-ended Rawls at a stoplight. Evidence showed it was more likely than not that Bailey failed to apply his brakes in time to avoid the collision, failed to turn

> At the Weatherford Hotel in Flagstaff, Arizona, in Room 59, a balcony extends across thirty inches of the room’s only window, leaving a twelve-inch gap with a three-story drop to the concrete below. A sign prohibits smoking in the room but invites guests

> While living in her home country of Tanzania, Sophia Kiwanuka signed an employment contract with Anne Margareth Bakilana, a Tanzanian living in Washington, D.C. Kiwanuka traveled to the United States to work as a babysitter and maid in Bakilana’s house.

> Medtronic, Inc., is a medical technology company that competes for customers with St. Jude Medical S.C., Inc. James Hughes worked for Medtronic as a sales manager. His contract prohibited him from working for a competitor for one year after leaving Medtr

> Sharon Yeagle was an assistant to the vice president of student affairs at Virginia Polytechnic Institute and State University (Virginia Tech). As part of her duties, Yeagle helped students participate in the Governor’s Fellows Program. The Collegiate Ti

> Donald and Gloria Bowden hosted a cookout at their home in South Carolina, inviting mostly business acquaintances. Justin Parks, who was nineteen years old, attended the party. Alcoholic beverages were available to all of the guests, even those who, like

> Suppose that a state imposes a higher tax on out-of-state companies doing business in the state than it imposes on in-state companies. Is this a violation of equal protection if the only reason for the tax is to protect the local firms from out-of-state

> Susan Calles lived with her four daughters, Amanda (age 11), Victoria (age 5), and Jenna and Jillian (age 3). In March 1998, Calles bought an Aim N Flame utility lighter, which she stored on the top shelf of her kitchen cabinet. A trigger can ignite the

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