A881
Review the article, “The Greed Cycle” by John Cassidy and explain the changing nature of the goal of the corporation, the relationship between agency problems and the goal of shareholder wealth maximization, successful and unsuccessful ways in which agency problems between managers and owners have been addressed, the relationship between agency conflicts and options given to managers, and thoughts regarding the ultimate goal of the corporation.
Corporation Goals
Between 1900 and 1920, most managers were contented with making use of shareholders’ richness in exchange for a massive salary. By the end of 1920, they changed this perception and started manipulating stock prices and diversifying corporate funds unprofessionally. An act of security was enacted in1933 in an attempt to control the market. The law helped reduce the agency disagreements between managers and owners. By the end of 1970, the remuneration of managers got linked to the organization’s size, a bigger salary for a big organization. The result was a corporation’s goal to expand the firm overlooking risks, returns, or the prices of stocks.
A882
What percentage of total commodity derivatives are energy derivatives in the U.S. financial market?
Financial Market
About 30%, which is equivalent to 400 million U.S. dollars, is energy derivatives. They get traded on the off-exchange in commercial markets and also sell on future exchanges. Derivative and physical markets for oils such as crude oil and natural gas have changed in the current years. In the ordinary market, worldwide demand and increased supply and political instability are some of the factors contributing to increased prices. These changes were happening in the physical market, whereas in the derivative market, unpredictability was experienced in energy prices. The prices were above average for the most part until they started increasing in 2006 following an increase in the volumes trading for futures.
A883
What other products or services could Thida have used to solve the problems she is facing in the Cambodia case study? a. Loan to purchase fertilizer b. Loan to cover university fees for daughter c. Savings account to manage cash flow from jasmine sales d. Insurance to cover medical expenses for the family
Case Study
This study was conducted to show the diversity in some country’s underlying conditions. Taking a loan to buy fertilizers is not a basic need; therefore, it should not be an option. Thida requires choices to generate or save money to cater to her family needs and pay her daughter’s education. Therefore, the best option is to acquire a loan that settles her daughter’s school fee because education is an investment in itself. Also, she needs to get a savings account to help manage her funds coming from the sales made by Jasmine. Lastly, acquiring a medical cover is the most crucial step because it is a basic need, and healthcare tends to be quite expensive.
A884
Identify three areas in which present value is used as a measurement basis. Briefly describe one topic related to (a) Assets. (b) Liabilities. (c) Revenues or expenses.
Measurement
Accounting, financial statements, and cash flows use present value for measurements. A company’s assets are called capital fixed assets and are forthright to the amount. They are based on the values recorded in the books and the replacement costs. However, financial statements do not have numbers that notify the investors of the worth of a company’s brand or intellectual property.
Liabilities gets measured with respect to value changes because of changes in rates of interest. Moreover, liabilities value is almost impossible to change because of its credit spread and liquidity effects.
Revenue gets determined by the value of the exchange of a product from a business. In cash discounts, revenue gets recorded in gross price, and the discount reflects as expenses.
A886
A). Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of these firms are expected to be low. B). In general, the cost of debt capital is lower than the cost of equity capital. For this reason, it might be expected that firms with high debt ratios would have a lower weighted average cost of capital. Explain at least one reason why this is not the case.
Diversification
- Diversification is very crucial because it helps spread out stock risk, especially those that have low interrelation. They are put together in a portfolio that can be differentiated because weak assets can be reimbursed by gaining assets. An example is the firms that produce gold. Gold has never corresponded with the stock market. Therefore, the stock market doesn’t link with gold firms, and they operate independently.
- Usually, the debt cost is lower than the price of equity; therefore, companies try to raise the debt amount in the structure of capital. Debt amount increases capital structure weight, which decreases capital weighted average since the cost of equity is higher than that of debt. However, this is not always the case. The primary reason which applies to most firms is that increased capital structure leads to increased risks, and a firm has to incur more costs due to financial distress.
A887
Pick a publicly-traded company and perform a percentage-of-sales pro forma.
Sales Pro Forma
This is a method used to calculate finances needed to increase the level of sales. It allows the formulation of income statements and balance sheets. Preparing a pro forma predicts sales and represents the income statements as projected sales in percentages.
Assuming a company like pet products forever tax rate is 40%, holding factors such as depreciation constant, the pro forma will appear like this. The reduction links to the fixed assets, if no fixed assets should be increased to increase the sales, then the depreciation levels will possibly stay constant. However, if no more factory space is left because the machines can’t handle more capacity, the assets might increase because of the growth of sales and lead to depreciation. Moreover, if the company has to acquire more money to buy fixed assets, there will be an increase in interest expenses. Predictions contain such judgments, and every assumption can influence the results.
A888
Establishing a subsidiary in a foreign market to take advantage of all essential value chain activities requires a strategy that does what?
Subsidiary
That creates a foreign market entry. A difference is drawn between aggressive and passive exporting. Passive exporting involves waiting for orders or orders coming to you by chance. At the same time, aggressive exportation creates marketing strategies that offer a broad picture of what a firm plans to do in a foreign market.
A strategy that has export paths, exporting needs paths that are either direct or indirect. Depending on the type of product dealt with, a firm can choose the way of export that best suits it. For example, products that go bad faster like horticultural products need to get the fastest means to reach to the end consumer than products that are durable for a long time.
A889
- List and explain the advantages and disadvantages that accrue to an insurer when it decides to purchase reinsurance in the U.S.? Back up answers with examples. 2. List three methods used for determining case reserves and explain how these three methods differ in execution/processing in the U.S? Back up the answers with examples.
Purchase Reinsurance
Advantages include; risk transfers, a company can share its risks with other companies. Also, arbitrations can be gathered by acquiring insurance for less than the original amount collected from the shareholders. Companies can manage their capital by avoiding significant losses.
Disadvantages include bankruptcy margins. Some companies won’t allow the purchase of insurance by new clients leading to limited cash. Also, not getting expertise from other insurance companies could lead to low ratings and premiums.
They are average, tabular, and judgment method. The average way creates a case reserve using a specific division of claims, and judgment method determine a case reserve by basing it on previous experience with the same applications. The tabular process requires insurance companies to have adequate funds to settle benefits when a claim is filed against them by policyholders.
A890
Develop an analysis of the projected return on investment for your college education and projected future employment. This analysis will consist of two parts. Part 1: Describe how and why you made the decision to pursue an MBA. In the description, include calculations of expenses and opportunity costs related to that decision. Part 2: Analyze your desired occupation.
Determine how much compensation (return) you expect to earn and how long will it take to pay back the return on this investment
Return On Investment
I settled on a decision to pursue an MBA after completing my degree program and realized it was not marketable in the states. Therefore, the only other thing was to supplement my degree with an MBA to increase my chances in the job industry.
The reason I decided to do an MBA is because of the high salaries it attracts. An MBA graduate receives a higher salary than that of a graduate with an ordinary master’s qualification.
Additionally, doing an MBA increases the chance for a better career opportunity because of the high qualifications. Also, it increases the chance for greater networking opportunities. This is because you get to know and interact differently with business managers. Studying an MBA requires a tuition fee of about 30,000 USD per year inclusive of living expenses.
- I want to be a business manager. As a business manager, I expect to earn 80,000 USD in many institutions. This is almost twice as much as I could earn with an ordinary degree. In less than three years, the investment I made through my MBA education will get covered.