c. If she were risk-seeking, which investments would she select? Why? If Sharon were risk-seeking, she would select Investment Y and Z since they have a higher risk without an increased return. “The attitude toward risk in which a decreased return would be accepted for an increase in risk” (Gitman, 2009). d. Given the traditional risk preference behavior exhibited by financial managers, which investment would be preferred?
Introduction Elasticity relates to the change in demand or supply in relation to price. Whether it is the law of demand or supply the price of a good or service has an impact on elasticity. Goods or services that are considered an essential item are less sensitive to price changes and therefore deemed inelastic because the quantity demand or supplied only experience small changes when the price changes. Elastic goods or services tend to be nonessential items that experience greater changes with prices. The law of demand tells us that an increase in price will cause the quantity demanded to decrease whereas the law of supply states that if price increases the quantity supplied increases as well.
IRR represents the discount rate at which the present value of the expected cash inflows from a project equals the present value of the expected cash outflows. Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected. It is to be noted that NPV uses an absolute amount IRR is interpreted in terms of ‘Rate’.
Before we explore how a reduction in the interest rates leads to an increase in consumption we must first define what it exactly means to consume. Mainstream economists such as Tim Harford define consumption as the spending by house holds on consumer products and services. As the interest rate decreases it leads to consequential reactions on behalf of consumers, one of these actions is an increase in the level of goods consumed. This is a result of it being cheaper to borrow money from banks and other financial institutions, this meaning purchases which have been prolonged or “put off” by consumers can now be readily purchased. This is an effect of a lower opportunity cost as the overall cost associated with borrowing has decreased and the marginal benefit of saving has increased, meaning consumers will receive more of a benefit if they purchase goods on credit based agreements opposed to saving, leading to an increase in the amount of credit transactions.
The GDP value would then decrease, due to the move from Point A to C, and increase employment which would decrease savings. In addition, there is an inverse relationship to both bond prices and interest rates because as one increase in value, the other decreases, and vice versa. 2. IS-LM Model--Suppose that you have the following equations for the IS-LM model. The following are the equations of the IS-LM model, here including a feature that taxes are not simply given but depend on income through a tax function, T(Y).
The straight-line method spreads the expense evenly by periods and the accelerated methods yield higher depreciation expense in the early years of an asset’s useful life and lower depreciation expense in the later years while the units-of-production method, bases depreciation expense for a given period on actual use. Companies use different depreciation methods for tax reporting and financial reporting because every company has a different asset quality and the depreciation on those assets for each company depreciates differently so it is up to the management to be discrete to which choice of depreciation to use in their reporting in respect to their fixed assets. Straight Line method: Advantage: 1) Straight-line method allows for more “income smoothing". 2) It allows company to show more book value of the asset which increases the value of the company. Disadvantages: 1) benefit of Tax deduction is availed late.
We will apply the cost of capital as the hurdle rate to discount future cash flows for the investment projects of the firm’s three divisions. WACC for Marriott Corporation The WACC for the Marriott Corporation was calculated to be 11.88%. This calculation was based on both the information provided in the case, as well as
Field work phase We used following techniques in our field work: -Interview with Bert Roberts who was the chairman of the board and John Sidgmore, vice chairman of the board (see exhibit A) -Interview with Max Bobbit, the chairman of the Audit Committee -Review of minutes of Board meetings -Evaluation of the functions of the Board based on the review of the organizational chart -Review of company’s procedures manual on compliance -Accounting department organization structure and related functional job descriptions including responsibility and authority relationships Review Work Steps | Budgeted Hours | Personnel Assigned | 1. Goals and Objectives a. Review plans and goals for the year b. Review internal materials related to employee growth | 6 | Shernelle | 2. Organization Chart and Procedures Manual c. Obtain a copy of organization chart and analyze
The basic answer is that share repurchases are great when the share price is undervalued, and not-so-great when the share price is overvalued. To put it into a more useful context, if you would otherwise reinvest your dividends or invest new capital into the company at current stock prices, then share repurchases are useful to you because the company basically does it for you. The alternative is that the company could pay you a higher dividend, but you’d be taxed on that dividend and reinvest it into the company anyway. On the other hand, if you would not reinvest dividends or invest new capital into the company at current prices, then share repurchases are not in alignment with your current outlook, and it would be better for you to receive a higher dividend. Something else to be considered is that when a company uses money for share repurchases when it could be paying a higher dividend instead, the company’s management is limiting your control and increasing theirs.
Consequently, only suited to a direct-sale model. As such, may be more costly to market to customers iii. Relatively more vulnerable to supply chain disruptions • Benefits i. Lowers working capital needs, makes it easier to self-finance ii. Leads to beneficial cash conversion cycle iii.