At December 31, 2010, Reid Company had 600,000 shares of common stock issued and

outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000
of which were issued on October 1, 2010. Net income for 2010 was $2,000,000, and dividends
declared on preferred stock were $400,000. Compute Rei

Define the following terms. (a) Basic earnings per share. (b) Potentially dilutive security. (c)
Diluted earnings per share. (d) Complex capital structure. (e) Potential common stock.

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Cordero Corporation has an employee stock-purchase plan which permits all full-time employees
to purchase 10 shares of common stock on the third anniversary of their employment and an
additional 15 shares on each subsequent anniversary date. The purchase price is set at the market
price on the date purchased and no com

Seles Corporation’s charter authorized issuance of 100,000 shares of $10 par value common
stock and 50,000 shares of $50 preferred stock. The following transactions involving the
issuance of shares of stock were completed. Each transaction is independent of the others. 1.
Issued a $10,000, 9% bond payable at par and

Access the glossary (“Master Glossary”) to answer the following. (a) What is the definition
of “basic earnings per share”? (b) What is “dilution”? (c) What is a “warrant”?
(d) What is a “grant date”?

What effect do stock dividends or stock splits have on the computation of the weighted-average
number of shares outstanding?

(Preemptive Rights and Dilution of Ownership) Wallace Computer Company is a small, closely
held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the
remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who
is now retired. The balance sheet of the compa

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(Conversion of Bonds) Schuss Inc. issued $3,000,000 of 10%, 10-year convertible bonds on June
1, 2010, at 98 plus accrued interest. The bonds were dated April 1, 2010, with interest payable
April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On
April 1, 2011, $1,000,000 of these bon

On January 5, 2010, Phelps Corporation received a charter granting the right to issue 5,000
shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares
of $10 par value common stock. It then completed these transactions. Jan. 11 Issued 20,000
shares of common stock at $16 per share.
If a company’s outstanding shares are increased through a stock dividend or a stock split,
how would that alter the presentation of its EPS data?

(Conversion of Bonds) On January 1, 2010, when its $30 par value common stock was selling
for $80 per share, Bartz Corp. issued $10,000,000 of 8% convertible debentures due in 20 years.
The conversion option allowed the holder of each $1,000 bond to convert the bond into five
shares of the corporation’s common stock.

(Stockholders’ Equity Section of Balance Sheet) The following is a summary of all relevant
transactions of Vicario Corporation since it was organized in 2010. In 2010, 15,000 shares were
authorized and 7,000 shares of common stock ($50 par value) were issued at a price of $57. In
2011, 1,000 shares were issued as a s

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A company plans to issue shares and wants to know the SEC’s stance on the accounting
treatment for the costs of issuing stock. Can these costs be deferred, or must they be expensed
immediately?

(EPS, Anti dilution) Brad Dolan, a stockholder of Rhode Corporation, has asked you, the
firm’s accountant, to explain why his stock warrants were not included in diluted EPS. In
order to explain this situation, you must briefly explain what dilutive securities are, why they are
included in the EPS calculation, and wh

The 2010 income statement of Wasmeier Corporation showed net income of $480,000 and an
extraordinary loss of $120,000. Wasmeier had 100,000 shares of common stock outstanding all
year. Prepare Wasmeier’s income statement presentation of earnings per share.

Explain how convertible securities are determined to be potentially dilutive common shares and
how those convertible securities that are not considered to be potentially dilutive common shares
enter into the determination of earnings per share data.

(Computation of Book Value per Share) John stone Inc. began operations in January 2009 and
reported the following results for each of its 3 years of operations. 2009 $260,000 net loss 2010
$40,000 net loss 2011 $700,000 net income At December 31, 2011, John stone Inc. capital
accounts were as follows. 6% cumulativ

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Explain the treasury-stock method as it applies to options and warrants in computing dilutive
earnings per share data.

(Analysis and Classification of Equity Transactions) Penn Company was formed on July 1, 2008.
It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of
8% $25 par value, cumulative and nonparticipating preferred stock. Penn Company has a July
1–June 30 fiscal year. The following in

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one
detachable stock warrant. After issuance, the bonds were selling separately at 98. The market
price of the warrants without the bonds cannot be determined. Use the incremental method to
record the issuance of the bonds and warrants.

Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2010. On
May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares
outstanding if the 30,000 shares were issued for cash. (b) Compute the weighted-average number
of shares outstanding if the 30,000 shares were iss

Discuss the similarities and the differences between convertible debt and debt issued with stock
warrants.

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Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10
par value common stock. The bonds are converted on December 31, 2010, when the unamortized
discount is $30,000 and the market price of the stock is $21 per share. Record the conversion
using the book value approach.

Bedard Corporation reported net income of $300,000 in 2010 and had 200,000 shares of
common stock outstanding throughout the year. Also outstanding all year were 45,000 options to
purchase common stock at $10 per share. The average market price of the stock during the year
was $15. Compute diluted earnings per share.

Refer to P&G’s financial statements and accompanying notes to answer the following
questions. (a) Under P&G’s stock-based compensation plan, stock options are granted
annually to key managers and directors. (1) How many options were granted during 2007 under
the plan? (2) How many options were exercisable at June

Briefly explain why corporations issue convertible securities.

On January 1, 2010 (the date of grant), Lutz Corporation issues 2,000 shares of restricted stock
to its executives. The fair value of these shares is $75,000, and their par value is $10,000. The
stock is forfeited if the executives do not complete 3 years of employment with the company.
Prepare the journal entry (if an

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Hatch Company has two classes of capital stock outstanding: 8%, $20 par preferred and $5 par
common. At December 31, 2010, the following accounts were included in stockholders’
equity. Preferred Stock, 150,000 shares $ 3,000,000 Common Stock, 2,000,000 shares
10,000,000 Paid-in Capital in Excess of Par—Preferr

On July 1, 2010, Roberts Corporation issued $3,000,000 of 9% bonds payable in 20 years. The
bonds include detachable warrants giving the bondholder the right to purchase for $30 one share
of $1 par value common stock at any time during the next 10 years. The bonds were sold for
$3,000,000. The value of the warrants at

Discuss why options and warrants may be considered potentially dilutive common shares for the
computation of diluted earnings per share.

(Stock Dividends) Kulikowski Inc., a client, is considering the authorization of a 10% common
stock dividend to common stockholders. The financial vice president of Kulikowski wishes to
discuss the accounting implications of such an authorization with you before the next meeting of
the board of directors. (a) The first

(Treasury Stock Transactions and Presentation) Clemson Company had the following
stockholders’ equity as of January 1, 2010. Common stock, $5 par value, 20,000 shares
issued $100,000 Paid-in capital in excess of par 300,000 Retained earnings 320,000 Total
stockholders’ equity $720,000 During 2

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Kellogg Company in its 2004 Annual Report in Note 1—Accounting Policies made the
comment on page 853 about its accounting for employee stock options and other stock-based
compensation. This was the annual report issued the year before the FASB mandated expensing
stock options. (a) Briefly discuss how Kellogg’s fina

What are the advantages of using restricted stock to compensate employees?

(Stock Warrants—Various Types) For various reasons a corporation may issue warrants to
purchase shares of its common stock at specified prices that, depending on the circumstances,
may be less than, equal to, or greater than the current market price. For example, warrants may
be issued: 1. To existing stockholders on

Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2010, which
entitles executives to receive cash at the date of exercise for the difference between the market
price of the stock and the pre-established price of $20 on 5,000 SARs. The required service
period is 2 years. The fair value of

Pechstein Corporation issued 2,000 shares of $10 par value common stock upon conversion of
1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $60
per share. The common stock is trading at $26 per share at the time of conversion. Record the
conversion of the preferred stock.
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What are the computational guidelines for determining whether a convertible security is to be
reported as part of diluted earnings per share?

(Ethical Issues—Compensation Plan) The executive officers of Rouse Corporation have a

performance-based compensation plan. The performance criteria of this plan are linked to growth
in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the
shares; if growth is 16%, they earn 125%. If

Access the glossary (“Master Glossary”) to answer the following. (a) What is a
“convertible security”? (b) What is a “stock dividend”? (c) What is a “stock
split”? (d) What are “participation rights”?

Myers Company provides you with the following condensed balance sheet information. For each
transaction below, indicate the dollar impact (if any) on the following five items: (1) total assets,
(2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5)
stockholders’ equity. (Each situation

Go to the book’s companion website and use information found there to answer the
following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What employee
stock-option compensation plans are offered by Coca-Cola and PepsiCo? (b) How many options
are outstanding at year-end 2007 for both Coca-Cola and P

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How is anti dilution determined when multiple securities are involved?

(Warrants Issued with Bonds and Convertible Bonds) Incurring long-term debt with an
arrangement whereby lenders receive an option to buy common stock during all or a portion of
the time the debt is outstanding is a frequent corporate financing practice. In some situations the
result is achieved through the issuance of

Martinez Company’s ledger shows the following balances on December 31, 2010. 5%
preferred stock—$10 par value, outstanding 20,000 shares $ 200,000 Common stock—$100
par value, outstanding 30,000 shares 3,000,000 Retained earnings 630,000 Assuming that the
directors decide to declare total dividends i

(Treasury Stock—Cost Method—Equity Section Preparation) Washington Company has the

following stockholders’ equity accounts at December 31, 2010. Common Stock—$100 par
value, authorized 8,000 shares $480,000 Retained Earnings 294,000 (a) Prepare entries in journal
form to record the following transacti

Kellogg Company is the world’s leading producer of ready-to-eat cereal products. In recent
years the company has taken numerous steps aimed at improving its profitability and earnings
per share. Presented below are some basic facts for Kellogg Corporation. (a) What are some of
the reasons that management purchases it

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What are the arguments for giving separate accounting recognition to the conversion feature of
debentures?

Over what period of time should compensation cost be allocated?

(Conversion of Bonds) Gabel Company has bonds payable outstanding in the amount of
$400,000, and the Premium on Bonds Payable account has a balance of $6,000. Each $1,000
bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are
converted into preferred stock. Assuming that the

For each period that an income statement is presented, what must a company disclose about its
EPS?

(Stock Warrants—Various Types) For various reasons a corporation may issue warrants to
purchase shares of its common stock at specified prices that, depending on the circumstances,
may be less than, equal to, or greater than the current market price. For example, warrants may
be issued: 1. To existing stockholders on

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(a) What is the par or stated value of Coca-Cola’s and PepsiCo’s common or capital
stock? (b) What percentage of authorized shares was issued by Coca-Cola at December 31, 2007,
and by PepsiCo at December 29, 2007? (c) How many shares are held as treasury stock by Coca-
Cola at December 31, 2007, and by PepsiCo at De

The books of Conchita Corporation carried the following account balances as of December 31,
2010. The company decided not to pay any dividends in 2010. The board of directors, at their
annual meeting on December 21, 2011, declared the following: “The current year dividends
shall be 6% on the preferred and $.30 per sh

(EPS Concepts and Effect of Transactions on EPS) Chorkina Corporation, a new audit client of
yours, has not reported earnings per share data in its annual reports to stockholders in the past.
The treasurer, Beth Bots ford, requested that you furnish information about the reporting of
earnings per share data in the curr

What is meant by the term anti dilution? Give an example.

Richardson Company is contemplating the establishment of a share-based compensation plan to

provide long-run incentives for its top management. However, members of the compensation
committee of the board of directors have voiced some concerns about adopting these plans,
based on news accounts related to a recent accoun

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What type of earnings per share presentation is required in a complex capital structure?

The following note related to stockholders’ equity was reported in Wiebold, Inc.’s
annual report. On February 1, the Board of Directors declared a 3-for-2 stock split, distributed on
February 22 to shareholders of record on February 10. Accordingly, all numbers of common
shares, except unissued shares and treasury

The outstanding capital stock of Pennington Corporation consists of 2,000 shares of $100 par
value, 6% preferred, and 5,000 shares of $50 par value common. Assuming that the company has
retained earnings of $70,000, all of which is to be paid out in dividends, and that preferred
dividends were not paid during the 2 yea

Hagar Company has outstanding 2,500 shares of $100 par, 6% preferred stock and 15,000 shares
of $10 par value common. The schedule below shows the amount of dividends paid out over the
last 4 years. Allocate the dividends to each type of stock under assumptions (a) and (b). Express
your answers in per share amounts usi

Kalin Corporation had 2010 net income of $1,000,000. During 2010, Kalin paid a dividend of $2
per share on 100,000 shares of preferred stock. During 2010, Kalin had outstanding 250,000
shares of common stock. Compute Kalin’s 2010 earnings per share.

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How compensation expense is computed using the fair value approach?

(EPS: Preferred Dividends, Options, and Convertible Debt) “Earnings per share” (EPS) is
the most featured, single financial statistic about modern corporations. Daily published
quotations of stock prices have recently been expanded to include for many securities a “times
earnings” figure that is based on EPS. S

On January 1, 2010, Bar wood Corporation granted 5,000 options to executives. Each option
entitles the holder to purchase one share of Bar wood’s $5 par value common stock at $50
per share at any time during the next 5 years. The market price of the stock is $65 per share on
the date of grant. The fair value of the o

Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2010. On May 1,
2010, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares,
which were reissued on October 1. Compute Douglas’s weighted-average number of shares
outstanding for 2010.
Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of $160 per bond to
induce conversion into shares of its common stock. Upon conversion of all the bonds,
Bridgewater Corp. recorded the $160,000 premium as a reduction of paid-in capital. Comment
on Bridgewater’s treatment of the $160,000 “s

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(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10
par value common stock authorized and 20,000 shares issued and outstanding. On August 15,
2010, Mask purchased 1,000 shares of treasury stock for $18 per share. Mask uses the cost
method to account for treasury stock. On September

Explain how the conversion feature of convertible debt has a value (a) To the issuer and (b) To
the purchaser.

What is meant by a dilutive security?

Briefly explain the accounting requirements for stock compensation plans under GAAP.

(Conversion of Bonds) On January 1, 2009, Trillini Corporation issued $3,000,000 of 10-year,

8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December
31. Each $1,000 debenture can be converted into eight shares of Trillini Corporation $100 par
value common stock after December 31, 2

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Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares
its financial statements in accordance with U.S. GAAP. 2007 (, 000) Current liabilities $ 554,114
Convertible subordinated debt 648,020 Total liabilities 1,228,313 Stockholders’ equity
176,413 Net inco

What is promotion? What are the five specific areas within the general area of promotion?
Where do social media fit within the overall area of promotion?

Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with
respect to the accounting for dilutive securities, stock-based compensation, and earnings per
share.

Earnings per share can affect market prices of common stock. Can market prices affect earnings
per share? Explain.

For how many periods must a company present EPS data?

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Before Gordon Corporation engages in the treasury stock transactions listed below, its general
ledger reflects, among others, the following account balances (par value of its stock is $30 per
share). Record the treasury stock transactions (given below) under the cost method of handling
treasury stock; use the FIFO meth

Visit a company and interview an individual who is knowledgeable about the firm’s
management information system. Determine what problems and opportunities exist because of
the system.

What are the major differences between high-contact and low-contact service systems?

Suppose Inflatables Inc., makers of air mattresses for swimming pools, has the following
transactions one week: • Sale of three deluxe mattresses to Al Wett (paid cash--$75) on 7/16
• Received cheque from Ima Flote in payment for mattresses bought on credit ($90) on 7/13
• Received new shipment of 200 mattre

1. What are the advantages and disadvantages of retaining the Zellers brand for a while before
switching over to the Target brand? 2. To what extent does Target differ from Walmart in terms
of market segmentation strategy? 3. What, if any, effect will the Target move into Canada have
on cross-border shopping? Explain

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Dasar Company reports the following data in its September 30, 2012 financial statements: Gross
sales ………………. $225,000 Current assets …………… 40,000 Long-term assets
………… 100,000 Current liabilities ………… 16,000 Long-term liabilities ……… 44,000
Owners' equity

Consider the following statement: Social media are rapidly going to become more important than
traditional media in promoting the products and services of companies.” Do you agree with
the statement? Defend your answer.

Explain how financial ratios allow managers to monitor their own efficiency and effectiveness.

Using the fishbone diagram in Figure 12.2 as a guide, analyze the various ways quality at
Frabert’s can be managed.

1. Do you think that changes in the way real estate agents are paid will end up saving money for
people who buy a home? For people who sell their home? 2. Consider the following statement: It
is unreasonable for the Competition Bureau to force CREA to share its MLS listings with e-
brokers because CREA has spent a lot

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Give two examples (other than those in this chapter) for each of the major types of business
application programs.

How are modern tools of banking revolutionizing the relationship between banks and their
clientele?

What are the advantages of a car like the Nano? Are there disadvantages? Explain.

What elements of the 4 P’s apply to ModCloth’s marketing strategy?

Consider the following statement: The Competition Bureau’s plan to create national
guidelines to define terms like “recyclable” is well-intentioned, but it will not work in
practice because companies will figure out ways to get around the rules and still make
unwarranted claims about how “green” they are. Do

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What is the value to consumers of things like loyalty cards and discount cards? Why would
companies offer consumers such cards?

If you were planning to invest in a company, which of the three types of financial statements
would you want most to see? Why?

Why might there be reluctance on the part of accounting firms or their clients to embrace green
initiatives like paperless systems?

What cost savings are inherent in the electronic system for both your company and its
customers? In your answer, consider such costs as handling, postage, and paper.

What are the major differences between goods production operations and service operations?

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Why is benchmarking an important method for improving quality?

1. Why do people in some countries keep using things other than coins or bills for money? 2. As
noted in the case, a variety of items are used for money. To what extent does each item satisfy
the four characteristics that money should possess? 3. Discuss the advantages and disadvantages
of eliminating the penny in Ca

1. What are the primary features and benefits that help explain the successful commercialization
of this yogurt category in the North American market? 2. In the case we have identified both
private brands and national brands. Categorize each of the brands mentioned in the case and
explain what the difference is betwee
Consider the following statement: Companies should reconsider their use of just-in-time
inventory systems because if a supply disruption occurs, the manufacturing process will almost
immediately have to be shut down because the company carries virtually no inventory. Do you
agree or disagree with the statement? Explain

What criteria can you suggest to evaluate different credit card offers?

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How would you expect the branding, packaging, and labelling of convenience, shopping, and
specialty goods to differ? Why? Give examples to illustrate your answers.

A retailer buys a product from a manufacturer for $25 and sells it for $45. What is the markup
percentage? Explain what the term “markup percentage” means.

Do you think the Nano would satisfy consumers in markets in other countries? Explain your
reasoning.

Do you think the PC will become obsolete soon? Explain your reasoning.

What lessons can be learned from the Nano with regard to the relationship of production to the
other functional areas of business such as marketing and finance? What is the relationship
between mass production and the quality level of the Nano?

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How are consumers likely to respond to paying bills electronically? Are you likely to get a
different response from individuals than you get from business?

Start with a $1000 deposit and assume a reserve requirement of 15%. Now trace the amount of
money created by the banking system after five lending cycles.

1. Explain in your own words the developments during the last decade that have created
problems for Canadian manufacturing. 2. Should the Canadian government intervene more
aggressively in the automobile industry to maintain employment? Explain your reasoning. 3.
Consider the following statement: The Alberta oil sand

As services are personalized, do you think quality will become more or less important? Why?

1. In your experience, is most word-of-mouth advertising positive or negative? 2. Why does

word-of-mouth advertising have such an impact? 3. Why would companies like Procter &
Gamble (which have historically focused on mass advertising) turn their attention to word-of-
mouth advertising? 4. Do the statistics about w

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What are the strengths and weaknesses of e-distribution?

How do you know when you have enough credit?

How might benchmarking be used to increase productivity in the service sector?

Explain the difference between financial and managerial accounting. In your answer, describe
the different audiences for the two types of accounting and the various individuals who are
involved in the process.

In a personal one-on-one business, how important are the human relation skills of those
delivering the service? Can you make an argument that they are more important than the service
itself?

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How do cost-oriented pricing and break-even analysis help managers measure the potential
impact of prices?

High productivity in the service sector has historically been difficult to achieve. Why was this
so? What might be changing in this area that will cause service productivity to increase during
the next decade?

When equipment manufactures advertise residential H/AC products, they often show them in
different climate situations (in winter, summer, or high-humidity conditions). Which market
segments are these ads targeting? Describe these segments in terms of demographic and
psychographics characteristics.

Balance sheets and income statements are supposed to be objective assessments of the financial
condition of a company. But the accounting scandals of the last few years show that certain
pressures may be put on accountants as they audit a company’s financial statements.
Describe these pressures. To what extent do the

If you were starting your own small business, what are the key marketing pitfalls you would try
to avoid?

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1. Recognizing the benefits and costs of the IFRS on the international markets, how will this
change affect provincial and national reporting standards? 2. What measures should be put in
place to monitor and govern the use of the IFRS? 3. Given that some Canadian companies have
embraced the new standards, what is the

What elements of consumer behaviour has Overwaitea utilized when deciding on its
differentiation and pricing strategies
There are clearly benefits for firms that embrace green accounting practices, but are there also
benefits to clients? If so, describe them.

Why is the customization of and easy access to personal services so attractive as we enter the
twenty-first century?

What kinds of changes in banking are shifting banks away from their historical role?

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Consider the following statement: Mobile investing is dangerous. People need to carefully
analyze investment data and not make quick on-the-go decisions. This approach may cause
inexperienced investors to feel a false sense of security and will lead to more foolish impulse
investments. Do you agree with the statement?

If the Bank of Canada wants to increase the money supply, what options does it have? Explain
how each of these options work to increase the money supply.

1. How has the change in government policy with regards to amortization period and down
payments influenced the housing market? 2. Why are bank executives asking the government to
increase regulations? Isn’t it in the interest of all business executives to have less regulation
to enable them to create profits for th

A business hires a professional accountant like a CA or CGA to assess the financial condition of
the company. Why would the business also employ a private accountant?

1. What is total quality management? How is it relevant for automobiles? 2. What is the
difference between internal and external benchmarking? Do the J.D. Power Initial Quality and
Vehicle Dependability studies facilitate benchmarking? Explain. 3. Consider the following
statement: Consumer opinions about which cars

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Why do you think some buyers want personalized cards? Why do some consumers want ready-
made cards from retail stores?

What can companies do to lessen the impact of supply chain disruptions?

If Microsoft had won its appeal, do you think that would have reduced the motivation to develop
innovative new ideas? Defend your reasoning.

What are the resources needed and the finished products that are produced in the following
services? • Real estate firm • Childcare facility • Bank • City water and electric
department • Hotel
Explain how the activities of e-agents (Internet shopping agents) or brokers differ from those of
traditional agents/brokers.

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Do you believe that this approach can work for major manufacturers like GM or Honda?

From the manufacturer's point of view, what are the advantages and disadvantages of using
intermediaries to distribute a product? From the end buyer's point of view?

Why do you think credit card companies continue to offer cards to people who are financially
overextended?

1. In your own words, explain the similarities and differences between manufacturing and
service operations. How do the examples presented above illustrate your points? 2. How do the
service factors of intangibility, customization, and unstorability generally influence the provision
of services? How do these factors s

Suppose that a small publisher selling to book distributors has fixed operating costs of $600,000
per year and variable costs of $3.00 per book. How many books must the firm sell to break even
if the selling price is $6.00? If the company expects to sell 50,000 books next year and decides
on a 40 percent markup, what w

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Consider the various kinds of non-store retailing. Give examples of two products that typify the
kinds of products sold to at-home shoppers though each form of non-store retailing. Are different
products best suited to each form of non-store retailing? Explain.

Explain how the functions of management (planning, organizing, leading and controlling) relate
to one another in the pursuit of quality.

What is your reaction to the Fur Council of Canada’s green advertising campaign? What
would you say to an animal rights activist who is outraged at the claims the Fur Council is
making?

1. Consider the traditional channels of distribution for music. Which channel elements are most
affected by the presence of services like Spotify? Explain how those elements are affected. 2.
Develop arguments opposing the legality of online downloading of music. Then take the reverse
position and develop an argument i

1. What factors occurred in the external environment that allowed for the increase in use and
success of viral marketing campaigns? Do any of these factors also pose related threats? 2. How
do the decisions made by marketing managers about the marketing mix of the product (a movie
like The Dark Knight) affect the impl
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To what extent are patent disputes similar to the disputes regarding the downloading of music
from the internet?

What are the costs and benefits for a company that has decided to pursue quality and productivity
as competitive tools?

Identify a synthetic production process and an analytic production process. Then classify each
according to whether it is chemical, fabrication, assembly, transport, or clerical. Explain your
reasoning.

How does the double-entry system reduce the chances of mistakes or fraud in accounting?

What does brand equity mean and how do companies like Apple take advantage of their strong
brand equity?

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What is the logic behind the “law of one price” concept? Give an example using
Switzerland and China.

Why would a business use a push strategy rather than a pull strategy?

How can an electronic conferencing system increase office productivity and efficiency?

Give three examples (other than those in the chapter) of products that use intensive distribution.
Do the same for products that use exclusive distribution and selective distribution. For which
category was it easiest to find examples? Why?

How has the World Wide Web changed the nature of business research?

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Using current marketing communication tools, how has ModCloth differentiated itself from its
competitors?

Why do the four levels of user groups in an organization need different kinds of information
from the IS?

What general factors motivate marketing managers to price their products at, above, or below
prevailing market prices?

In addition to changing processing technologies, what are some other ways that steel
manufacturers can help protect the environment?
In an age of heightened competition, why do you think companies are willing to benchmark with
each other?

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Consider the following statement: Accounting information is meaningful and useful for well-
established companies, and is particularly helpful for individuals and organizations when making
investment decisions. But accounting information is not very helpful in making investment
decisions for newly-established companies.

What are the three basic categories of retailers? In which category does OFG fit? Explain your
reasoning.

1. Refer to the terms productivity and quality found in this chapter. How do they apply to the
practice of tree planting? 2. Consider the following statement: The productivity and quality of
rookie tree planters is very low, and the turnover rate is very high. Tree planting companies
should therefore hire only experie

Why must a business manage information as a resource?

Why has the in-store use of hidden cameras become so popular? Is this “video mining”
ethical? If not, how could it be made more acceptable?

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Is there a trade-off between bank accountability to customers and customer satisfaction with
banks?

1. Outline the possible pros and cons of the proposed merger from the perspective of each of the
Canadian accounting groups. 2. Supporters of the merger argue that it will result in marketing
cost savings. Do you think there will actually be such savings? What other costs might be
reduced (or increased) by the merger?

Why does the trend towards personalized, one-on-one service present unique opportunities for
entrepreneurs?

Develop a list of products and services for which demand will increase in the next two decades.
Then develop a list of products and services for which demand will decrease. Defend your
conclusions.

Interview the manager of a local retail or wholesale business about taking inventory. What is the
firm's primary purpose in taking inventory? How often is it done?

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Visit the Canadian Institute of Chartered Accountants website (www.cica.ca). How much
emphasis is placed on forensic accounting? How does a person become a forensic accountant?

As a risk manager of a large firm, what risks do you think your firms would face? What are the
risks for a small firm? What accounts for most important differences?

Do we really need all the different types of financial institutions we have in Canada? Could we
make do with just chartered banks? Why or why not?

How would you describe ModCloth’s segmentation strategy?

Switching to an electronic bill-paying system would require a large capital expenditure for new
computers and computer software. How could analyzing the company’s income statement
help you justify this expenditure?

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1. Why do you think there was such an uproar when Bell announced that it was introducing
usage-based billing? 2. Take the position of one of the network operators like Shaw or Bell, and
develop a list of arguments in favour of usage-based billing. Then take the position of an ISP and
develop a list of arguments opposi

Think about a skill you now have. Did you learn the skill by yourself, or did you have a teacher?
Did that teacher serve as a role model, a mentor, or both?

Some hoteliers believe that the Internet will eliminate the need for travel agents. Do you agree?
Explain your position.

Interestingly, the restaurant business does not typically offer discounts for large groups. That is,
a restaurant generally charges the same prices to those at a table for two as it would for those at a
table of 22. In the hotel business, discounts are typically given for group sales of 10 room nights
or more. Why do y

1. What are the various forms of employee behaviour that can be observed in organizations, and
what is the impact of the various forms on organizations? Identify the forms of employee
behaviour that are evident in each of the three situations described above, and how they affected
the organization in which they occurre

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In what ways do the two sources for debt financing differ from each other? How do they differ
from the two sources of equity financing?

Assume that you were a new entry-level employee in a hotel. What are some things that you
would want your supervisor to do for you during your first few weeks on the job?
Have you ever been treated unfairly in a job that you have held? How did that experience
influence how you felt about staying in that job?

Some guests do not understand the need for hotel managers to adjust room rates to meet
forecasted demand. How would you respond to a guest who complained about paying more than
the average room rate on a night all the hotels in your area forecasted to be a sell-out situation?

Why was progress toward a solution to Greece's problems so slow?

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Convention and visitors bureaus (CVBs) receive most of their funding from special taxes levied
on hotel guests. What other businesses in a city or region benefit from the efforts of a CVB?
Why do you think most communities refrain from as sassing a CVB tax on those businesses?

Hotel managers in franchised hotels often find the desires of their property owners are in conflict
with the desires of their brand managers. What personal skills would general managers in such
situations need if they hoped to satisfy both their owners and the brand's managers? How could
they obtain such skills?

What is the basic relationship between the amount of risk associated with a project and the
likelihood of gains (or losses) on the project? Explain how several financial instruments (GICs,
common stocks, preferred stocks, corporate bonds) illustrate this basic relationship.

Think about your own hometown. Do you think the majority of visitors to its hotels are leisure or
business travelers? List the reasons for your answer.

1. What is quality? What quality attributes does Posilight possess? 2. The dragons thought that it
was a better idea to licence the product than to sell the patent to a manufacturer. Why do you
think they took that position? 3. Why did the dragons conclude that Posilight had good market
potential?

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1. Why aren’t POS terminals wiped more often? 2. What actions can retailers take to reduce
credit card fraud? 3. Consider the following statement: Retail outlets should be required by law
to put up signs warning customers that their credit and debit card numbers may be stolen. Do you
agree or disagree with the sta

The properties selected to be a part of a specific hotel's competitive set will strongly affect how
the hotel's sales performance is assessed. Identify at least three hotel characteristics that should
be considered when selecting the properties to be included in a hotel's competitive set.
In an effort to conserve natural resources and reduce costs, many hotels change sheets and towels
in stay-over rooms only when requested to do so by the guest. Identify a positive and negative
aspect of this policy.

Excelling at community relations typically requires managers to promote their local geographic
areas as well as their hotels. What possible conflicts could you see resulting from such efforts?

Not all hotel owners enter into franchise agreements. Why do you think a hotel owner might
choose not to affiliate with a franchise brand?

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Sometimes even very good employees are reluctant to change. Assume, for example, that a
specific housekeeping procedure had been utilized for many years at a property. A change is
necessary because of numerous guest complaints. What tactics could you, as a manager, use to
reduce the employees' resistance to change as t

Some individuals are better than others are at providing quality guest service. Name five
personal characteristics you would seek in a person who wanted to be employed at a front office
you managed.

Give two examples of risks that are uninsurable. Why are they uninsurable?

What has been the experience of the European Union to date with emissions trading?

Hotel investors seek strong ROLs through increases in the value of their hotel's real estate,
operating profits, or both. What factors in a geographic area do you think make the real estate
value of hotels increase or decrease?

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Identify at least three specific local-area groups that general managers of limited-service hotels
could target for small group meetings sales.

What factors should be taken into account when deciding on the best mix of debt and equity for a
company?

Maintenance staff are often highly skilled at specific building-related trades (e.g., plumbing,
electricity, carpentry, or HVAC repair). What are some steps a maintenance chief could under
take to ensure that the skills of his or her staff were kept up-to-date?

Workplace diversity is a reality in most hotels. What are so specific benefits guests gain from
experiencing that diversity? What are some specific benefits gained by the hotel?
Maintaining food service equipment often requires specialized skill and replacement parts. Name
three factors that you would consider before deciding to outsource the preventive maintenance of
such equipment rather than performing it in-house.

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Many guests believe that the brands actually own hotels, when in almost all cases they do not.
How does this relationship affect the hoteliers who actually operate hotels?

Many hotels have implemented aggressive recycling programs. What factors would influence
your decision to begin such a program?

1. What are the four basic types of unemployment? Which type is most pronounced during
difficult economic times such as we have been experiencing during the last few years? Which
type is most pronounced in periods of rapid technological change? 2. What are some of
alternative paths that people might choose when they l

Some hotels have greatly expanded the amount of information about guests they maintain in
guest histories or profiles. Identify five items of information about a guest that you believe hotels
have a legitimate purpose in securing. What information might you, if you were a guest, not wish
to share with a hotel?

Some Internet booking sites operate by letting guests bid for hotel rooms at whatever price the
guest is willing to pay. In such cases, guests may not know the hotel they will be reserving at the
time of their bid. If the guest's bid is successful nonrefundable reservation is made. If you were
managing a front office,

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Name at least three daily sanitation-related concerns that you would have if you were the general
manager of a limited-service hotel offering a complimentary breakfast bar.

1. How does the Joe Fresh brand of fashion products create value for consumers? What is their
value equation? 2. Describe the target market for Joe Fresh fashions across various market
segmentation variables. 3. Explain the concept of brand equity and link it to the growth of the
Joe Fresh brand. How does the Joe Fre

Many hotels find it difficult to hire and retain housekeeping staff. Identify three reasons you
believe contribute to this difficulty. What could the general manager of a hotel do to help
overcome these obstacles?

Do you see any similarities in the movement of the various stocks during the same period? For
example, did the stocks move up or down at about the same time? If so, do you think the stocks
were affected by the same factors? Explain your thinking.
Effective marketing increases consumer awareness of a hotel. Selling relates to the personal
aspect of client relations. Which of these two activities do you believe is more important in the
long-term success of a hotel? Explain your position.

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Assume that you are a supervisor and direct the work of several teen-aged employees who have
worked for you for a few months and the work of several older employees who have worked at
the property for several years. What are examples of differences in the way you would provide
leadership to these different groups of em

1. What lessons about financing a business can you take away from this video? If there was a
second opportunity to make a pitch to the dragons, what advice would you give the owner? 2.
What do you think of the market potential for this product? Do you think Soakwash has a bright
future? Explain. Why or why not? 3. In

Explain how an investor might make money in a commodities trade. Then explain how an
investor might lose money in a commodities trade.

Hoteliers who work for a management company often find, as they advance in the company, that
they are selected to be promoted to new hotels that are larger or more complex to operate than
their current hotel. How do you think the management company would decide which hoteliers
within the company are ready for such a pr

What do you think would be the definition of excellent service at time of check-in (a) at a motel
on the highway and (b) at a full-service Ritz-Carlton hotel? In what ways would they be similar?

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1. Why do investors buy commercial paper? Why did some investors buy non-bank commercial
paper? 2. How does the commercial paper crisis demonstrate the risk-return principle? 3. Explain
how problems in the U.S. subprime mortgage market caused difficulties in the Canadian
commercial paper market. 4. Should Canada’s

What career advancement advantages might a GM who works for a management company have,
compared to a GM working for an individual hotel owner? What advantages might the GM gain
by working for an individual hotel investor?

Different brands enforce different brand standards. Name three brand standards that would likely
vary significantly based upon the system-wide ADR of a brand.

Have you ever used a travel agent? What types of trips do you think most require the help of a
travel agent?
Consider the following statement: "The vast majority of all problems in a lodging property are
caused by the manager— not by the employees." Do you agree? If you currently hold a job in
the hospitality industry, what would your manager think about this statement?

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Some in the hotel industry believe that too heavy an emphasis on the STAR report to evaluate a
hotel's sales effort has a negative effect. Others defend the STAR report as the only independent
way to evaluate a sales team's effectiveness. Identify two positive and two negative aspects of
STAR report utilization in an a

What is your favorite method of travel for a short trip? For a long trip?

When guests register at a hotel, they must supply information such as their name, address, and
telephone number. Do you believe that hotels have the right to share this data with others, such
as with direct mail or advertising companies without the express approval of the guest? Should
such data be shared with the hote

Assume that you are the general manager at a hotel. What are five things you would want all
recently hired staff members to know regardless of their specific job or department?

Some managers specialize in one of the four functional areas of management. In which
functional area do you think you would do best? Why?

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In the past, brand names helped travelers feel confident about the quality of hotels they chose.
Today, hotel Web sites provide the same type of help. Visit the Web site of one higher and one
lower-priced hotel. Do you think the Internet has helped lower-cost brands compete more equally
for guests? Explain your answer.

Housekeeping is a very physically demanding work. Identify five things a hotel's executive
housekeeper or general manager could do to make the work of housekeeping employees as
physically light (less strenuous) as possible.

Some hotels believe that self check-in and self check-out by guests will be appealing because it
will save the guest time. Other hoteliers believe that guests desire contact with hotel staff during
registration and departure. Which position do you take? Does the type of hotel involved help
determine your view?

Brand managers work hard to establish an image for their brand. Consider a hotel brand that is
associated with rooms that sell for a high price. What factors might make a traveler want to
choose that brand?
Review the Ritz-Carlton Hotel Company's motto "We are Ladies and Gentlemen serving Ladies
and Gentlemen." What impact would that philosophy likely have on the company's line-level
employees?

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1. What factors determine the market price of a share of stock? Which of those factors were at
work in the cases described above which dealt with the issue of stock prices? 2. What is the
difference between debt and equity financing? Are the situations described above examples of
debt or equity issues? Explain. 3. Co

Trade associations want to meet the needs of their members, including those that are social in
nature. Identify some activities that you believe would be fun to do with others working in the
same field as yourself.

In large hotels with a full-time sales staff, hotel salespersons are typically paid a salary and (if
their work is superior) a bonus for their work. In many other industries, salespersons are only
paid the commissions they earn. Why do you think hotel salespersons are rarely, if ever, paid
"commission-only" for their e

For major hotel repairs that cannot be done by in-house staff, some hoteliers prefer to establish a
relationship with one prime contractor in each field or trade (e.g., plumbing, heating, and
electrical) and then employ that contractor as needed. Other managers prefer to solicit
competitive bids for each major project

Some people consider entry-level positions in the hotel hospitality industry to be dead-end jobs.
What is the difference between a dead-end job and an entry-level position in well-managed
hotel? How would you respond to someone who stated that all beginning jobs in the hotel and
hospitality industry are dead-end jobs?

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Brand managers for economy or budget hotels also work hard to establish their brand image.
Consider a hotel brand that is associated with rooms that sell for a very low price. What factors
in addition to price might make a traveler want to choose that brand?

What are some factors that could cause the occupancy rate for a hotel in a specific location to
increase or decrease at various times of the year?

1. Briefly describe the steps in the risk management process. To what extent does the risk
management process focus on detecting employee fraud? 2. Assume for a moment that Jerome
Kerviel’s bosses knew what he was doing and they went along with it as long as he was
making money for SocGen. Assume also that they char
Some industry experts say the best general managers have a sales and marketing background.
Others believe accounting, front office, food and beverage, or housekeeping experience is most
important for a general manager's success. What are two important characteristics you believe
successful general managers possess? Why

The costs related to employee turnover are significant, managers should do what they can to
minimize those c In addition to hourly pay, what factors do you think often make an employee
leave one employer and seek identical work with another employer? Do you think hotel agers
can influence the factors you identified?

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Assume that you are a hotel manager who is very concerned about providing quality guest
service. List three critical topics you would discuss in a guest service training session presented
to all new employees at the time of their orientation.

Hotels are not the only businesses that must employ talented employees who are oriented to
guest service. Identify three other businesses that employ individuals in a significant guest
service role. Could these businesses be a source of employees for a hotel's front office?

What are some factors that could cause a hotel's revenue to increase or decrease at various times
of the year?

Go to Sedar.com and find the balance sheets of two corporations operating in the same industry.
Determine the relative emphasis each company places on raising money through debt versus
equity. Why might these differences exist?

Consider the following statement: Short selling should be banned because it creates instability in
the price of a company’s stock. Do you agree or disagree with the statement? Defend your
reasoning.

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Some lodging industry professionals feel there are now too many different brands. Explain why
you do or do not agree with them.

Hoteliers are concerned about commoditization of products and services. What are three things
you learned in this chapter that can help you avoid commoditization in a hotel you would
manage?

1. What kind of challenges and opportunities are evident when a company decides to go green?
2. What is social responsibility? To what extent does “going green” qualify as socially
responsible behaviour by a company? Explain your reasoning. 3. Consider the following
statement: Geothermal heating is environmentall
Some hotel owners manage the hotel they own. What are some advantages you would gain by
operating a hotel you owned personally? What are some possible disadvantages?

How do the provincial securities commissions regulate securities markets?

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1. What do you think of the approach taken by some marketers in using very direct language
(such as menopausal skin) in their ads? 2. Explain the basic elements of segmentation, targeting
and positioning by using the Louis Vuitton “personal journey” campaign as an example. 3.
What forms of media would you use to

In some hotels, abandoned property found by employees is given to the finder after an
established period of time. In other hotels, such property is given to designated charities. Identify
an advantage and a disadvantage of utilizing the charity approach.

1. After reading this case, what have you learned or what can you say about the role of central
banks (i.e., the Bank of Canada, Federal Reserve) in the proper functioning of the economy and
the stock market? 2. History holds many lessons for individual investors. However, quite often
the enthusiasm or panic of the ti

Review the six ingredients necessary to develop a quality service system that were presented in
this chapter. Assume that you are the manager of a hotel property where guests must very
frequently wait in line a long time to check in. Work through a potential solution to this problem
utilizing the six-step method discus

In some hotels the cleaning of exterior sidewalks and parking areas is the responsibility of
housekeeping. In others it is the responsibility of maintenance. Name three factors that would
influence which department you would assign to this important task.

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There was a brief examination of the legal aspects of ma" ing hotel staff in this chapter. What
can you as a hotel ager do to help keep your hotel in compliance with all of changing laws and
regulations that would apply to you and your property?

Many chief engineers find that maintaining an older hotel is more challenging than maintaining a
newer property. Name five areas in a hotel you think might become more difficult to manage as
the hotel ages.

Some hoteliers feel that room attendants must be able to fluently speak the language of the
majority of the hotel's guests to do their jobs effectively. They feel that guest contact is an
important role of the room attendant's job, and to converse with guests they must have strong
language skills. Other hoteliers feel
Housekeeping employees (especially room attendants) often have easy access to guests' personal
belongings. As a result, some hotels require applicants for a room attendant position to undergo a
criminal-background check. Would you implement such a policy at a hotel you manage? Would
you require that all hotel employees

For many routine maintenance replacement items, a hotel manager has a choice between doing
all of the maintenance at once (such as changing air filters in all guest rooms quarterly) and
doing it as needed (such as replacing hot water heater pumps when they stop working). In other
cases, such as replacing parking lot li

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The science of lodging management can be studied and learned. The art of lodging management
can be practiced. Which do you think would be most important to your own development as a
hotel manager?

Water conservation is important in a hotel. List three things you could do as a hotel guest to help
conserve water. How do you think hoteliers could inform guests about activities like the ones
you listed?

You have learned that every employee in a hotel is responsible for sales and marketing. Identify
three specific activities that each hourly hotel employee can be instructed to undertake to assist
in the hotel's sales and marketing effort.

The night audit position in a hotel is an important one. What personal characteristics do you
believe are necessary for an employee to enjoy the late night/early a.m. work shifts required of
such a position?

1. What is quality? What factors define quality for Montoni’s products? 2. What lessons
about valuing a business can you take away from this video? 3. What do you think of the market
potential for this product? Do you think Nut Free Cookie Company has a future? Explain your
answer.

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1. What does the term “workforce diversity” mean? What are the advantages of a diverse
work force? How diverse is the nail salon business? 2. What is meant by the term
“motivation”? To what extent are motivational factors different for immigrants than for
individuals who were born in Canada? To what extent are

Some MNCs establish a manufacturing facility where there is a relatively low cost of labor, but
they sometimes close the facility later because the cost advantage dissipates. Why do you think
the relative cost advantage of these countries is reduced over time?
What would happen to individual Canadian consumers or Canadian corporations who
consistently spent more money than they earned?

Increasingly, some hotel chains (e.g., Hyatt, Lowes, and Accor) are outsourcing their
housekeeping operations. What would likely be some advantages of taking such an approach to
room cleaning? What are some potential disadvantages of taking such an approach?

When you visit a Web site to reserve a hotel room, what Web site features are most important to
you? How do you select the Web site that you visit?

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Give an example of a time in your own travel experience when teamwork (or lack of teamwork)
by employees in different departments of a hotel directly affected the quality of your stay.

What factors would impact the price of preferred shares?

Assume that you expect that the European central bank (ECB) plans to engage in central bank
intervention in which it plans to use euros to purchase a substantial amount of U.S. dollars in the
foreign exchange market over the next month. Assume that this direct intervention is expected to
be successful at influencing th

Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final
assembled products to the parent, which sells them in the U.S.. The assembled products are
invoiced in dollars. The Argentine subsidiary obtains some material from China, and the Chinese
exporter is willing to accept Argentine pes

Assume that Hampshire Co. has net payables of 200,000 Mexican pesos in 180 days. The
Mexican interest rate is 7% over 180 days, and the spot rate of the Mexican peso is $.10. Suggest
how the U.S. firm could implement a money market hedge. Be precise.

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Eeeva Inc. has an EBIT of $1.5 million. The tax rate is 35 percent. Eeeva has a debt of $2.5
million and common equity of $5 million. Eeeva's cost of capital is estimated to be 11 percent.
Calculate Eeeva's EVA.

Suppose an investor uncovers a strategy by which she or he is able to predict future stock prices
by observing trends in past prices. What form of the efficient market hypothesis would this be
evidence against?

Suppose a firm has an EBIT of $5 million, interest expenses of $2 million, depreciation expenses
of $1 million, and a tax rate of 35 percent. Its bank agrees to lend up to 4 times its EBITDA.
How much debt can the firm borrow from the bank?
Assume that Maine Co. (a U.S. firm) measures its economic exposure to movements in the
British pound by applying regression analysis to data over the last 36 quarters: SP = b0 + b1e + u
Where SP represents the percentage change in Maine's stock price per quarter, e represents the
percentage change in the British pou

One year ago, you sold a put option on 100,000 euros with an expiration date of one year. You
received a premium on the put option of $.04 per unit. The exercise price was $1.22. Assume
that one year ago, the spot rate of the euro was $1.20, the one-year forward rate exhibited a
discount of 2%, and the one-year futures

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Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate is 7
percent and the corporate tax rate is 35 percent, what is the value of the interest tax shield?

Facebook has expanded its business internationally, as described by various web links (based on
online search terms "Facebook" and "international expansion"). Write a short essay to explain
Facebook's motivation for its international expansion? Explain the possible risks of international
expansion by Facebook.

Quartz Co. has its entire operations in Miami, Florida, and is an exporter of products to Eurozone
countries. All of its earnings are derived from its exports. The exports are denominated in euros.
Reed Co. (of the U.S.) is about the same size as Quartz Co. and generates about the same amount
of earnings in a typical y

What is the average annual compound (geometric) return over two years for a stock that goes
from $10 to $20, then back to $10?

Fastest Company's common shares are currently trading for $30. It is expected that Fastest
Company will pay an annual common share dividend of $2 next year. It is also expected that the
dividend will grow at a rate of 5 percent each year in perpetuity. Based on the constant growth
dividend discount model, what is Faste

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Suppose Fastest Company is offered accounts payable terms of "2 percent, 10 days, net 30 days"
but its suppliers actually allow it to repay in 45 days. Estimate the annualized opportunity cost
for not taking advantage of the 2 percent discount for the quick 10-day payment.

a. What are the main components of the current account? b. What are the main components of
the financial account?

How will your answer in question #3 change if we now relax the M&M perfect capital markets
assumption and incorporate a corporate tax rate of 35 percent?
Based on the chart of betas in Figure 10-16 How would you describe the relative riskiness of
investing in Bank of America?

Explain what we mean by diversification and how it relates to firm-specific (unsystematic) risk
and market (systematic) risk?

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Fastest Company's preferred shares were issued last year at $30 per share but are now trading at
$28.50. Fastest pays annual preferred dividends of $2.25 per share. Estimate Fastest Company's
cost of preferred shares.

Eeeva has 1 million shares outstanding and its current share price is trading at $6. Its book value
of debt is similar to its estimated market value of debt. Using this information and that provided
in question #9, estimate Eeeva's MVA.

Consider MNCs that produce products in the United States and export the products to developing
countries. The MNCs could reduce their exposure to exchange rate risk if they set up their
operations in the countries to which they export. Such a restructuring would cause a shift in
expenses to the developing countries, an

Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final
assembled products to the parent, which sells them in the U.S.. The assembled products are
invoiced in dollars. The Argentine subsidiary obtains some material from China, and the Chinese
exporter is willing to accept Argentine pes

According to the pecking-order model of capital structure, firms will tend to raise capital in
which of the following orders? a. Equity, debt, internal financing b. Internal financing, debt,
equity c. Equity, internal financing, debt d. Debt, internal financing, equity

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Relever Inc. has a debt-to-equity (D/E) ratio of 0.3; its target D/E is 1.6. Relever currently has an
estimated beta of 1.1. Relever's estimated tax rate is 35 percent. What is the estimate of Relever's
beta at its target D/E?

The appendix to this chapter explains how tax laws can affect how much earnings the
subsidiaries remit to parents. Explain how U.S. tax laws may encourage foreign subsidiaries to
reinvest their earnings in their location rather than remit the earnings to the U.S?

On the basis of the following bond information, describe the features of the bond and explain the
timing of the expected cash flows (assuming today is January 1, 2014): coupon = 6.4 percent;
maturity date = January 1, 2024; price = $103.42; yield = 5.94 percent.
a. Russia commonly experiences a high rate of inflation. Explain why the high Russian inflation
typically places severe downward pressure on the value of the Russian ruble. b. In some periods,
the Russian government intervenes in the foreign exchange market and imposes some restrictions
on international trade. Why mi

In July 2015, Greece was negotiating to obtain its third bailout from several European
governments over a five-year period. Greece argued that austerity measures should not be
imposed. Offer some reasoning for this argument. The European governments insisted on very
strict austerity measures as a condition for providi

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What is the payback period for the project in question 6? In question 6 what is the net present
value of a project with a $40,000 initial investment and expected net cash flows of $15,000,
$20,000, and $25,000 in each of the next three years, assuming an appropriate discount rate of 10
percent?

According to Modigliani and Miller (M&M), in a world of perfect capital markets, what will be
the expected equity return (or cost of equity) for a firm that has a cost of capital of 10 percent, a
cost of debt of 6 percent, debt valued at $1.2 million, and equity valued at $1.0 million?

All things being equal, would you expect to receive a higher or lower interest payment if a bond
had a call provision?

Assume that interest rate parity exists. Assume that you have payables in Argentine pesos. You
have noticed that historically, the forward rate of the Argentine peso quoted by the banks
exhibits a large discount. Write a short essay on the likely reason why the peso exhibits a
discount over time. Does the discount mea

If research employs an event study, what form of the efficient market hypothesis is it most likely
testing?

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Explain how U.S. corporate income tax laws have encouraged some U.S.-based MNCs to
consider moving their parent to another country?

Repeat the cost of capital calculations in Figure 12.8, assuming market value weights instead of
book value weights. In figure 12.8

Assume that interest rate parity (IRP) exists, along with the following information: Spot rate of
British pound = $1.80 6-month forward rate of pound=$1.82 12-month forward rate of
pound=$1.78 a. Is the annualized 6-month U.S. risk-free interest rate above, below, or equal to
the British risk-free interest rate?