2. **Maximizing Shareholder Return. ***1**st **Post Due by Day 3*. Maximizing shareholder returns usually implies that the firm must also satisfy customers, employees, suppliers, creditors and other stakeholders. First, rank stakeholders as to expected risk and return and then rank stakeholders as to their importance to the organization’s success. Explain your ranking differences and/or similarities. Respond to at least two of your classmates’ postings.

3. **Retirement Savings. ***1**st **Post Due by Day 3*. A Person plans to retire today and expects to begin living off their retirement savings beginning one year from now and continuing until death. Identify and explain key variables that will influence the amount of income that can be taken from retirement saving annually until death. How will increasing and decreasing these key variables impact the income amount? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 2 Mini Case: Financial Statement and Cash Flow Analysis. ***Due by Day 7*. Complete the Mini Case in Chapter 2 of your text. Use formulas to calculate the ratios, clearly label the analysis, and round to one decimal place. You must complete all requirements of the case study.

Jaedan Industries has the following account balances as of December 31, 2010 (Found on pages 64-65 of the text). The firm’s dividend payout ratio is 25% and the tax rate is 34%. The firm’s stock price on December 31, 2009, was $42.89 and on December 31, 2010, it was $56.82. Construct an income statement, balance sheet, statement of retained earnings, and statement of cash flows for 2010. Also, determine the firm’s free cash flow and calculate the liquidity, activity, debt, profitability, and market ratios for Jaedan industries. Perform a DuPont

11BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

analysis and compare the firm to the industry ratios (see last table in this sequence). Evaluate the financial strengths and weaknesses Jaedan Industries may have.

Remember to show all your work.

**Discussions**

Participate in the following discussions:

1. **Stock Market Investing. ***1**st **Post Due by Day 3*. A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a “good company” as one that has experienced rapid growth in the recent past. Explain the reasons why shares of “good companies” may or may not turn out to be “good investments.” Respond to at least two of your classmates’ postings.

2. **Total Risk. ***1**st **Post Due by Day 3*. What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 6 Mini Case: Risk, Return, and the Capital Assets Pricing Model. ***Due by Day 7*. Review the mini- case in Chapter 6 of your text and respond to the following:

Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies. The two corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows:

1. Calculate the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments). Determine the optimal risky portfolio if the risk-free rate is 3%.

Kalama Corp.

Adelphia Technologies

Expected Return (%)

14.86

23.11

Standard Deviation (%)

23.36

31.89

14BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

2. Andrea has $50,000 and wants to earn a 19% expected return on her investment. Describe the optimal manner in which to structure her portfolio-both in dollar amounts and in weights relative to her $50,000- based on the preceding information.

3. Andrea is also seriously considering buying some stock in Medford Barnett Corporation (MBC). The stock prices of MBC and the S&P for the past 25 months are tabulated below. Andrea estimates that MBC will earn a 14% return during the next year, and she expects the market to earn a 12% return during the same time period. In addition, she expects the relationship exhibited between the S&P and MBC to remain as it has in the past. Assuming that Andrea would be pulling MBC into a fully diversified portfolio, explain if buying the MBC shares a good decision.

**Discussions**

Participate in the following discussions:

1. **N.P.V. & I.R.R. ***1**st **Post Due by Day 3*. Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows? Respond to at least two of your classmates’ postings.

2. **Sensitivity Analysis vs. Scenario Analysis. ***1**st **Post Due by Day 3*. Explain the difference between sensitivity analysis and scenario analysis. Offer and argument for the proposition that scenario analysis offers a more realistic picture of a project’s risk than does sensitivity analysis. Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 9 Mini Case: Cost of Capital and Project Risk. ***Due by Day 7*. Read the mini-case in Chapter 9 of your text and answer the following questions:

1. Calculate the current weighted average cost of capital for CWC.

2. Calculate the appropriate discount rate for the healthy bottled water project.

3. Perform a sensitivity analysis for sales price, variable costs, fixed costs, and unit sales at +/- 10%, 20%,

and 30% from the base case.

4. Perform an analysis of the following two scenarios:

a. Best case: Selling 2,500,000 units at a price of $1.24 each, with variable production costs of $0.22 per unit.

b.Worst case: Selling 950,000 units at a price of $1.32 per unit, with variable production costs of $0.27 per unit.

5. Explain if the firm should undertake the healthy bottled water project.

Remember to show all your work on any calculation.

**Discussions**

Participate in the following discussions:

1. **Corporate Insiders & Outside Investors. ***1**st **Post Due by Day 3*. Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies? Respond to at least two of your classmates’ postings.

2. **Pecking Order Theory. ***1**st **Post Due by Day 3*. What is the main premise underlying the pecking order theory? What is the “pecking order” of sources of financing? Why is dividend policy so important to this theory? How does the concept of financials slack relate to this theory? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 14 Mini Case: The Link between Capital Structure and Capital Budgeting. ***Due by Day 7*. Review the mini case on page 477 of your text. Complete all requirements of the case.

Fiera Corporation is evaluating a new project that costs $45,000. The project will be financed using 40% debt and 60% equity, thus maintaining the firm’s current debt-to-equity ratio. The firm’s stockholders have a required rate of return of 18.36%, and its bondholders expect a 10.68% rate of return. The project is expected to generate annual cash flows of $13,000 before taxes for the next two decades. Fiera Corporation is in the 36% tax bracket.

1. Determine the firm’s weighted average cost of capital (WACC).

2. Calculate the traditional net present value (NPV) of the project using the WACC. Should the project be

undertaken?

3. Using Modigliani and Miller’s Proposition II, determine the required return on unlevered equity.

**Discussions**

Participate in the following discussions:

1. **I.P.O. ***1**st **Post Due by Day 3*. Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm? Why? Respond to at least two of your classmates’ postings.

2. **Top-Down and Bottom-Up Sales Forecast. ***1**st **Post Due by Day 3*. Describe the differences between the top down and the bottom up sales forecast methods. Describe advantages and disadvantages of each. Do you think one approach is likely to be more accurate than the other? Explain. Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 22 Mini Case: Cash Conversion, Inventory, and Receivables Management. ***Due by Day 7*. Review the mini case in Chapter 22 of your text. Complete all requirements of the case.

Bracelet Blanks, Inc. (BB) generated $43,803,000 in sales (all on credit) during 2010. The cost of goods sold was 57% of that total. Accounts receivable totaled $3,240,222, inventory totaled $842,020, and accounts payable totaled $1,826,070.

Read and address the following points:

1. Calculate BB’s current cash conversion cycle.

2. BB currently uses 3,000 ingots of aluminum each year to manufacture bracelet blanks. The order cost

(including shipping) is $5,000 per order, and carrying costs are $75 per unit per year. Determine the

23BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

economic order quantity, the amount of safety stock, and the reorder point for aluminum ingots assuming

there is a 1-week lead time and the firm would like a safety stock of 3%.

3. In an attempt to boost sales, BB is considering relaxing its credit standards by extending more credit to

small firms. BB charges $1.50 per unit. Variable costs are $0.5126 per unit and fixed costs are $10,000,000 per year. The relaxation of credit standards is expected to result in a 3.8% increase in sales (the firm has sufficient excess capacity to handle the increase) as well as an increase of three days in the average collection period. They also expect bad debts to rise from the current level of 0% to 0.5% of sales. Assuming that BB requires a 13% return on investments of this type, should the firm relax its credit standards? Explain.

4. Additionally, BB offers its credit customers terms of net 30. However, it is considering changing the terms to 20/10 net 30 in an attempt to reduce the amount of time it takes to collect its accounts receivable. The firm believes this change alone would decrease the average collection period by five days. BB also expects that 63% of its customers will elect to pay within the discount period and that the increased attractiveness of the terms will increase sales by 1% a year. It is not expected that bad debts will change from the current level of 0% as a result of this change in terms. BB’s opportunity cost of funds invested in accounts receivable is 10%. Should the firm offer the cash discount? Explain. Evaluate this scenario separately from the one described in part d.

**Discussions**

Participate in the following discussions:

1. **Option Pricing. ***1**st **Post Due by Day 3*. Discuss differences between the binomial option pricing model and the risk-neutral method of option pricing. Respond to at least two of your classmates’ postings.

2. **Agency Problems. ***1**st **Post Due by Day 3*. Explain how agency problems may lead to non value-maximizing motives for mergers. Discuss the various academic theories offered as the rationale for motives induced by the agency problem. Respond to at least two of your classmates’ postings.

**End of Course Survey**

1. **End of Course Survey**. *Due by Day 7*. After you have completed the End of Course Survey, please complete the one question quiz to receive your points. If for any reason you wish not to complete the survey, you may do so and still receive the 0.5 points by completing the one question quiz.

**Final Paper**

1. **Final Paper. ***Due by Day 7*. Develop a well-written, researched paper. Your paper should address one of the topics listed below. Consider these topics from the perspective of a corporate finance officer.

Topics:

• Corporate Financing: Long Term and Short Term

• Stock Valuation, Risk and Returns

• Options, Derivatives

In your paper:

• Describe the selected topic in relation to a corporate environment.

• Analyze the roles and responsibilities in making these decisions for the organization.

• Explain how to monitor their performance.

26BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

• Explain how to alert the leaders of the organization to any anomalies or opportunities.

• Your paper should be based on research. Include real experiences you have observed. It is important that

you frame your paper in theory, application, examples, and current trends. When appropriate, compare and contrast method/techniques/models, explain strengths and weaknesses, analyze as to meaning and application, draw inferences.

2. **Maximizing Shareholder Return. ***1**st **Post Due by Day 3*. Maximizing shareholder returns usually implies that the firm must also satisfy customers, employees, suppliers, creditors and other stakeholders. First, rank stakeholders as to expected risk and return and then rank stakeholders as to their importance to the organization’s success. Explain your ranking differences and/or similarities. Respond to at least two of your classmates’ postings.

3. **Retirement Savings. ***1**st **Post Due by Day 3*. A Person plans to retire today and expects to begin living off their retirement savings beginning one year from now and continuing until death. Identify and explain key variables that will influence the amount of income that can be taken from retirement saving annually until death. How will increasing and decreasing these key variables impact the income amount? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 2 Mini Case: Financial Statement and Cash Flow Analysis. ***Due by Day 7*. Complete the Mini Case in Chapter 2 of your text. Use formulas to calculate the ratios, clearly label the analysis, and round to one decimal place. You must complete all requirements of the case study.

Jaedan Industries has the following account balances as of December 31, 2010 (Found on pages 64-65 of the text). The firm’s dividend payout ratio is 25% and the tax rate is 34%. The firm’s stock price on December 31, 2009, was $42.89 and on December 31, 2010, it was $56.82. Construct an income statement, balance sheet, statement of retained earnings, and statement of cash flows for 2010. Also, determine the firm’s free cash flow and calculate the liquidity, activity, debt, profitability, and market ratios for Jaedan industries. Perform a DuPont

11BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

analysis and compare the firm to the industry ratios (see last table in this sequence). Evaluate the financial strengths and weaknesses Jaedan Industries may have.

Remember to show all your work.

**Discussions**

Participate in the following discussions:

1. **Stock Market Investing. ***1**st **Post Due by Day 3*. A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a “good company” as one that has experienced rapid growth in the recent past. Explain the reasons why shares of “good companies” may or may not turn out to be “good investments.” Respond to at least two of your classmates’ postings.

2. **Total Risk. ***1**st **Post Due by Day 3*. What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 6 Mini Case: Risk, Return, and the Capital Assets Pricing Model. ***Due by Day 7*. Review the mini- case in Chapter 6 of your text and respond to the following:

Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies. The two corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows:

1. Calculate the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments). Determine the optimal risky portfolio if the risk-free rate is 3%.

Kalama Corp.

Adelphia Technologies

Expected Return (%)

14.86

23.11

Standard Deviation (%)

23.36

31.89

14BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

2. Andrea has $50,000 and wants to earn a 19% expected return on her investment. Describe the optimal manner in which to structure her portfolio-both in dollar amounts and in weights relative to her $50,000- based on the preceding information.

3. Andrea is also seriously considering buying some stock in Medford Barnett Corporation (MBC). The stock prices of MBC and the S&P for the past 25 months are tabulated below. Andrea estimates that MBC will earn a 14% return during the next year, and she expects the market to earn a 12% return during the same time period. In addition, she expects the relationship exhibited between the S&P and MBC to remain as it has in the past. Assuming that Andrea would be pulling MBC into a fully diversified portfolio, explain if buying the MBC shares a good decision.

**Discussions**

Participate in the following discussions:

1. **N.P.V. & I.R.R. ***1**st **Post Due by Day 3*. Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows? Respond to at least two of your classmates’ postings.

2. **Sensitivity Analysis vs. Scenario Analysis. ***1**st **Post Due by Day 3*. Explain the difference between sensitivity analysis and scenario analysis. Offer and argument for the proposition that scenario analysis offers a more realistic picture of a project’s risk than does sensitivity analysis. Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 9 Mini Case: Cost of Capital and Project Risk. ***Due by Day 7*. Read the mini-case in Chapter 9 of your text and answer the following questions:

1. Calculate the current weighted average cost of capital for CWC.

2. Calculate the appropriate discount rate for the healthy bottled water project.

3. Perform a sensitivity analysis for sales price, variable costs, fixed costs, and unit sales at +/- 10%, 20%,

and 30% from the base case.

4. Perform an analysis of the following two scenarios:

a. Best case: Selling 2,500,000 units at a price of $1.24 each, with variable production costs of $0.22 per unit.

b.Worst case: Selling 950,000 units at a price of $1.32 per unit, with variable production costs of $0.27 per unit.

5. Explain if the firm should undertake the healthy bottled water project.

Remember to show all your work on any calculation.

**Discussions**

Participate in the following discussions:

1. **Corporate Insiders & Outside Investors. ***1**st **Post Due by Day 3*. Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies? Respond to at least two of your classmates’ postings.

2. **Pecking Order Theory. ***1**st **Post Due by Day 3*. What is the main premise underlying the pecking order theory? What is the “pecking order” of sources of financing? Why is dividend policy so important to this theory? How does the concept of financials slack relate to this theory? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 14 Mini Case: The Link between Capital Structure and Capital Budgeting. ***Due by Day 7*. Review the mini case on page 477 of your text. Complete all requirements of the case.

Fiera Corporation is evaluating a new project that costs $45,000. The project will be financed using 40% debt and 60% equity, thus maintaining the firm’s current debt-to-equity ratio. The firm’s stockholders have a required rate of return of 18.36%, and its bondholders expect a 10.68% rate of return. The project is expected to generate annual cash flows of $13,000 before taxes for the next two decades. Fiera Corporation is in the 36% tax bracket.

1. Determine the firm’s weighted average cost of capital (WACC).

2. Calculate the traditional net present value (NPV) of the project using the WACC. Should the project be

undertaken?

3. Using Modigliani and Miller’s Proposition II, determine the required return on unlevered equity.

**Discussions**

Participate in the following discussions:

1. **I.P.O. ***1**st **Post Due by Day 3*. Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm? Why? Respond to at least two of your classmates’ postings.

2. **Top-Down and Bottom-Up Sales Forecast. ***1**st **Post Due by Day 3*. Describe the differences between the top down and the bottom up sales forecast methods. Describe advantages and disadvantages of each. Do you think one approach is likely to be more accurate than the other? Explain. Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 22 Mini Case: Cash Conversion, Inventory, and Receivables Management. ***Due by Day 7*. Review the mini case in Chapter 22 of your text. Complete all requirements of the case.

Bracelet Blanks, Inc. (BB) generated $43,803,000 in sales (all on credit) during 2010. The cost of goods sold was 57% of that total. Accounts receivable totaled $3,240,222, inventory totaled $842,020, and accounts payable totaled $1,826,070.

Read and address the following points:

1. Calculate BB’s current cash conversion cycle.

2. BB currently uses 3,000 ingots of aluminum each year to manufacture bracelet blanks. The order cost

(including shipping) is $5,000 per order, and carrying costs are $75 per unit per year. Determine the

23BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

economic order quantity, the amount of safety stock, and the reorder point for aluminum ingots assuming

there is a 1-week lead time and the firm would like a safety stock of 3%.

3. In an attempt to boost sales, BB is considering relaxing its credit standards by extending more credit to

small firms. BB charges $1.50 per unit. Variable costs are $0.5126 per unit and fixed costs are $10,000,000 per year. The relaxation of credit standards is expected to result in a 3.8% increase in sales (the firm has sufficient excess capacity to handle the increase) as well as an increase of three days in the average collection period. They also expect bad debts to rise from the current level of 0% to 0.5% of sales. Assuming that BB requires a 13% return on investments of this type, should the firm relax its credit standards? Explain.

4. Additionally, BB offers its credit customers terms of net 30. However, it is considering changing the terms to 20/10 net 30 in an attempt to reduce the amount of time it takes to collect its accounts receivable. The firm believes this change alone would decrease the average collection period by five days. BB also expects that 63% of its customers will elect to pay within the discount period and that the increased attractiveness of the terms will increase sales by 1% a year. It is not expected that bad debts will change from the current level of 0% as a result of this change in terms. BB’s opportunity cost of funds invested in accounts receivable is 10%. Should the firm offer the cash discount? Explain. Evaluate this scenario separately from the one described in part d.

**Discussions**

Participate in the following discussions:

1. **Option Pricing. ***1**st **Post Due by Day 3*. Discuss differences between the binomial option pricing model and the risk-neutral method of option pricing. Respond to at least two of your classmates’ postings.

2. **Agency Problems. ***1**st **Post Due by Day 3*. Explain how agency problems may lead to non value-maximizing motives for mergers. Discuss the various academic theories offered as the rationale for motives induced by the agency problem. Respond to at least two of your classmates’ postings.

**End of Course Survey**

1. **End of Course Survey**. *Due by Day 7*. After you have completed the End of Course Survey, please complete the one question quiz to receive your points. If for any reason you wish not to complete the survey, you may do so and still receive the 0.5 points by completing the one question quiz.

**Final Paper**

1. **Final Paper. ***Due by Day 7*. Develop a well-written, researched paper. Your paper should address one of the topics listed below. Consider these topics from the perspective of a corporate finance officer.

Topics:

• Corporate Financing: Long Term and Short Term

• Stock Valuation, Risk and Returns

• Options, Derivatives

In your paper:

• Describe the selected topic in relation to a corporate environment.

• Analyze the roles and responsibilities in making these decisions for the organization.

• Explain how to monitor their performance.

26BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

• Explain how to alert the leaders of the organization to any anomalies or opportunities.

• Your paper should be based on research. Include real experiences you have observed. It is important that

you frame your paper in theory, application, examples, and current trends. When appropriate, compare and contrast method/techniques/models, explain strengths and weaknesses, analyze as to meaning and application, draw inferences.

2. **Maximizing Shareholder Return. ***1**st **Post Due by Day 3*. Maximizing shareholder returns usually implies that the firm must also satisfy customers, employees, suppliers, creditors and other stakeholders. First, rank stakeholders as to expected risk and return and then rank stakeholders as to their importance to the organization’s success. Explain your ranking differences and/or similarities. Respond to at least two of your classmates’ postings.

3. **Retirement Savings. ***1**st **Post Due by Day 3*. A Person plans to retire today and expects to begin living off their retirement savings beginning one year from now and continuing until death. Identify and explain key variables that will influence the amount of income that can be taken from retirement saving annually until death. How will increasing and decreasing these key variables impact the income amount? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 2 Mini Case: Financial Statement and Cash Flow Analysis. ***Due by Day 7*. Complete the Mini Case in Chapter 2 of your text. Use formulas to calculate the ratios, clearly label the analysis, and round to one decimal place. You must complete all requirements of the case study.

Jaedan Industries has the following account balances as of December 31, 2010 (Found on pages 64-65 of the text). The firm’s dividend payout ratio is 25% and the tax rate is 34%. The firm’s stock price on December 31, 2009, was $42.89 and on December 31, 2010, it was $56.82. Construct an income statement, balance sheet, statement of retained earnings, and statement of cash flows for 2010. Also, determine the firm’s free cash flow and calculate the liquidity, activity, debt, profitability, and market ratios for Jaedan industries. Perform a DuPont

11BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

analysis and compare the firm to the industry ratios (see last table in this sequence). Evaluate the financial strengths and weaknesses Jaedan Industries may have.

Remember to show all your work.

**Discussions**

Participate in the following discussions:

1. **Stock Market Investing. ***1**st **Post Due by Day 3*. A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a “good company” as one that has experienced rapid growth in the recent past. Explain the reasons why shares of “good companies” may or may not turn out to be “good investments.” Respond to at least two of your classmates’ postings.

2. **Total Risk. ***1**st **Post Due by Day 3*. What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 6 Mini Case: Risk, Return, and the Capital Assets Pricing Model. ***Due by Day 7*. Review the mini- case in Chapter 6 of your text and respond to the following:

Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies. The two corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows:

1. Calculate the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments). Determine the optimal risky portfolio if the risk-free rate is 3%.

Kalama Corp.

Adelphia Technologies

Expected Return (%)

14.86

23.11

Standard Deviation (%)

23.36

31.89

14BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

2. Andrea has $50,000 and wants to earn a 19% expected return on her investment. Describe the optimal manner in which to structure her portfolio-both in dollar amounts and in weights relative to her $50,000- based on the preceding information.

3. Andrea is also seriously considering buying some stock in Medford Barnett Corporation (MBC). The stock prices of MBC and the S&P for the past 25 months are tabulated below. Andrea estimates that MBC will earn a 14% return during the next year, and she expects the market to earn a 12% return during the same time period. In addition, she expects the relationship exhibited between the S&P and MBC to remain as it has in the past. Assuming that Andrea would be pulling MBC into a fully diversified portfolio, explain if buying the MBC shares a good decision.

**Discussions**

Participate in the following discussions:

1. **N.P.V. & I.R.R. ***1**st **Post Due by Day 3*. Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows? Respond to at least two of your classmates’ postings.

2. **Sensitivity Analysis vs. Scenario Analysis. ***1**st **Post Due by Day 3*. Explain the difference between sensitivity analysis and scenario analysis. Offer and argument for the proposition that scenario analysis offers a more realistic picture of a project’s risk than does sensitivity analysis. Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 9 Mini Case: Cost of Capital and Project Risk. ***Due by Day 7*. Read the mini-case in Chapter 9 of your text and answer the following questions:

1. Calculate the current weighted average cost of capital for CWC.

2. Calculate the appropriate discount rate for the healthy bottled water project.

3. Perform a sensitivity analysis for sales price, variable costs, fixed costs, and unit sales at +/- 10%, 20%,

and 30% from the base case.

4. Perform an analysis of the following two scenarios:

a. Best case: Selling 2,500,000 units at a price of $1.24 each, with variable production costs of $0.22 per unit.

b.Worst case: Selling 950,000 units at a price of $1.32 per unit, with variable production costs of $0.27 per unit.

5. Explain if the firm should undertake the healthy bottled water project.

Remember to show all your work on any calculation.

**Discussions**

Participate in the following discussions:

1. **Corporate Insiders & Outside Investors. ***1**st **Post Due by Day 3*. Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies? Respond to at least two of your classmates’ postings.

2. **Pecking Order Theory. ***1**st **Post Due by Day 3*. What is the main premise underlying the pecking order theory? What is the “pecking order” of sources of financing? Why is dividend policy so important to this theory? How does the concept of financials slack relate to this theory? Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 14 Mini Case: The Link between Capital Structure and Capital Budgeting. ***Due by Day 7*. Review the mini case on page 477 of your text. Complete all requirements of the case.

Fiera Corporation is evaluating a new project that costs $45,000. The project will be financed using 40% debt and 60% equity, thus maintaining the firm’s current debt-to-equity ratio. The firm’s stockholders have a required rate of return of 18.36%, and its bondholders expect a 10.68% rate of return. The project is expected to generate annual cash flows of $13,000 before taxes for the next two decades. Fiera Corporation is in the 36% tax bracket.

1. Determine the firm’s weighted average cost of capital (WACC).

2. Calculate the traditional net present value (NPV) of the project using the WACC. Should the project be

undertaken?

3. Using Modigliani and Miller’s Proposition II, determine the required return on unlevered equity.

**Discussions**

Participate in the following discussions:

1. **I.P.O. ***1**st **Post Due by Day 3*. Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm? Why? Respond to at least two of your classmates’ postings.

2. **Top-Down and Bottom-Up Sales Forecast. ***1**st **Post Due by Day 3*. Describe the differences between the top down and the bottom up sales forecast methods. Describe advantages and disadvantages of each. Do you think one approach is likely to be more accurate than the other? Explain. Respond to at least two of your classmates’ postings.

**Assignment**

1. **Chapter 22 Mini Case: Cash Conversion, Inventory, and Receivables Management. ***Due by Day 7*. Review the mini case in Chapter 22 of your text. Complete all requirements of the case.

Bracelet Blanks, Inc. (BB) generated $43,803,000 in sales (all on credit) during 2010. The cost of goods sold was 57% of that total. Accounts receivable totaled $3,240,222, inventory totaled $842,020, and accounts payable totaled $1,826,070.

Read and address the following points:

1. Calculate BB’s current cash conversion cycle.

2. BB currently uses 3,000 ingots of aluminum each year to manufacture bracelet blanks. The order cost

(including shipping) is $5,000 per order, and carrying costs are $75 per unit per year. Determine the

23BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

economic order quantity, the amount of safety stock, and the reorder point for aluminum ingots assuming

there is a 1-week lead time and the firm would like a safety stock of 3%.

3. In an attempt to boost sales, BB is considering relaxing its credit standards by extending more credit to

small firms. BB charges $1.50 per unit. Variable costs are $0.5126 per unit and fixed costs are $10,000,000 per year. The relaxation of credit standards is expected to result in a 3.8% increase in sales (the firm has sufficient excess capacity to handle the increase) as well as an increase of three days in the average collection period. They also expect bad debts to rise from the current level of 0% to 0.5% of sales. Assuming that BB requires a 13% return on investments of this type, should the firm relax its credit standards? Explain.

4. Additionally, BB offers its credit customers terms of net 30. However, it is considering changing the terms to 20/10 net 30 in an attempt to reduce the amount of time it takes to collect its accounts receivable. The firm believes this change alone would decrease the average collection period by five days. BB also expects that 63% of its customers will elect to pay within the discount period and that the increased attractiveness of the terms will increase sales by 1% a year. It is not expected that bad debts will change from the current level of 0% as a result of this change in terms. BB’s opportunity cost of funds invested in accounts receivable is 10%. Should the firm offer the cash discount? Explain. Evaluate this scenario separately from the one described in part d.

**Discussions**

Participate in the following discussions:

1. **Option Pricing. ***1**st **Post Due by Day 3*. Discuss differences between the binomial option pricing model and the risk-neutral method of option pricing. Respond to at least two of your classmates’ postings.

2. **Agency Problems. ***1**st **Post Due by Day 3*. Explain how agency problems may lead to non value-maximizing motives for mergers. Discuss the various academic theories offered as the rationale for motives induced by the agency problem. Respond to at least two of your classmates’ postings.

**End of Course Survey**

1. **End of Course Survey**. *Due by Day 7*. After you have completed the End of Course Survey, please complete the one question quiz to receive your points. If for any reason you wish not to complete the survey, you may do so and still receive the 0.5 points by completing the one question quiz.

**Final Paper**

1. **Final Paper. ***Due by Day 7*. Develop a well-written, researched paper. Your paper should address one of the topics listed below. Consider these topics from the perspective of a corporate finance officer.

Topics:

• Corporate Financing: Long Term and Short Term

• Stock Valuation, Risk and Returns

• Options, Derivatives

In your paper:

• Describe the selected topic in relation to a corporate environment.

• Analyze the roles and responsibilities in making these decisions for the organization.

• Explain how to monitor their performance.

26BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

• Explain how to alert the leaders of the organization to any anomalies or opportunities.

• Your paper should be based on research. Include real experiences you have observed. It is important that

you frame your paper in theory, application, examples, and current trends. When appropriate, compare and contrast method/techniques/models, explain strengths and weaknesses, analyze as to meaning and application, draw inferences.

**Maximizing Shareholder Return. ***1**st **Post Due by Day 3*. Maximizing shareholder returns usually implies that the firm must also satisfy customers, employees, suppliers, creditors and other stakeholders. First, rank stakeholders as to expected risk and return and then rank stakeholders as to their importance to the organization’s success. Explain your ranking differences and/or similarities. Respond to at least two of your classmates’ postings.

**Maximizing Shareholder Return. ***1**st **st **Post Due by Day 3*

**Retirement Savings. ***1**st **Post Due by Day 3*. A Person plans to retire today and expects to begin living off their retirement savings beginning one year from now and continuing until death. Identify and explain key variables that will influence the amount of income that can be taken from retirement saving annually until death. How will increasing and decreasing these key variables impact the income amount? Respond to at least two of your classmates’ postings.

**Retirement Savings. ***1**st **st **Post Due by Day 3*

**Assignment**

**Assignment**

**Chapter 2 Mini Case: Financial Statement and Cash Flow Analysis. ***Due by Day 7*. Complete the Mini Case in Chapter 2 of your text. Use formulas to calculate the ratios, clearly label the analysis, and round to one decimal place. You must complete all requirements of the case study.

**Chapter 2 Mini Case: Financial Statement and Cash Flow Analysis. ***Due by Day 7*

11BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

Remember to show all your work.

**Discussions**

**Discussions**

Participate in the following discussions:

**Stock Market Investing. ***1**st **Post Due by Day 3*. A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a “good company” as one that has experienced rapid growth in the recent past. Explain the reasons why shares of “good companies” may or may not turn out to be “good investments.” Respond to at least two of your classmates’ postings.

**Stock Market Investing. ***1**st **st **Post Due by Day 3*

**Total Risk. ***1**st **Post Due by Day 3*. What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured? Respond to at least two of your classmates’ postings.

**Total Risk. ***1**st **st **Post Due by Day 3*

**Assignment**

**Assignment**

**Chapter 6 Mini Case: Risk, Return, and the Capital Assets Pricing Model. ***Due by Day 7*. Review the mini- case in Chapter 6 of your text and respond to the following:

**Chapter 6 Mini Case: Risk, Return, and the Capital Assets Pricing Model. ***Due by Day 7*

Kalama Corp.

Adelphia Technologies

Expected Return (%)

14.86

23.11

Standard Deviation (%)

23.36

31.89

14BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

**Discussions**

**Discussions**

Participate in the following discussions:

**N.P.V. & I.R.R. ***1**st **Post Due by Day 3*. Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow streams that alternate between inflows and outflows? Respond to at least two of your classmates’ postings.

**N.P.V. & I.R.R. ***1**st **st **Post Due by Day 3*

**Sensitivity Analysis vs. Scenario Analysis. ***1**st **Post Due by Day 3*. Explain the difference between sensitivity analysis and scenario analysis. Offer and argument for the proposition that scenario analysis offers a more realistic picture of a project’s risk than does sensitivity analysis. Respond to at least two of your classmates’ postings.

**Sensitivity Analysis vs. Scenario Analysis. ***1**st **st **Post Due by Day 3*

**Assignment**

**Assignment**

**Chapter 9 Mini Case: Cost of Capital and Project Risk. ***Due by Day 7*. Read the mini-case in Chapter 9 of your text and answer the following questions:

**Chapter 9 Mini Case: Cost of Capital and Project Risk. ***Due by Day 7*

1. Calculate the current weighted average cost of capital for CWC.

2. Calculate the appropriate discount rate for the healthy bottled water project.

and 30% from the base case.

4. Perform an analysis of the following two scenarios:

5. Explain if the firm should undertake the healthy bottled water project.

Remember to show all your work on any calculation.

**Discussions**

**Discussions**

Participate in the following discussions:

**Corporate Insiders & Outside Investors. ***1**st **Post Due by Day 3*. Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies? Respond to at least two of your classmates’ postings.

**Corporate Insiders & Outside Investors. ***1**st **st **Post Due by Day 3*

**Pecking Order Theory. ***1**st **Post Due by Day 3*. What is the main premise underlying the pecking order theory? What is the “pecking order” of sources of financing? Why is dividend policy so important to this theory? How does the concept of financials slack relate to this theory? Respond to at least two of your classmates’ postings.

**Pecking Order Theory. ***1**st **st **Post Due by Day 3*

**Assignment**

**Assignment**

**Chapter 14 Mini Case: The Link between Capital Structure and Capital Budgeting. ***Due by Day 7*. Review the mini case on page 477 of your text. Complete all requirements of the case.

**Chapter 14 Mini Case: The Link between Capital Structure and Capital Budgeting. ***Due by Day 7*

1. Determine the firm’s weighted average cost of capital (WACC).

undertaken?

3. Using Modigliani and Miller’s Proposition II, determine the required return on unlevered equity.

**Discussions**

**Discussions**

Participate in the following discussions:

**I.P.O. ***1**st **Post Due by Day 3*. Discuss the various issues that must be considered in selecting an investment banker for an IPO. Which type of placement is usually preferred by the issuing firm? Why? Respond to at least two of your classmates’ postings.

**I.P.O. ***1**st **st **Post Due by Day 3*

**Top-Down and Bottom-Up Sales Forecast. ***1**st **Post Due by Day 3*. Describe the differences between the top down and the bottom up sales forecast methods. Describe advantages and disadvantages of each. Do you think one approach is likely to be more accurate than the other? Explain. Respond to at least two of your classmates’ postings.

**Top-Down and Bottom-Up Sales Forecast. ***1**st **st **Post Due by Day 3*

**Assignment**

**Assignment**

**Chapter 22 Mini Case: Cash Conversion, Inventory, and Receivables Management. ***Due by Day 7*. Review the mini case in Chapter 22 of your text. Complete all requirements of the case.

**Chapter 22 Mini Case: Cash Conversion, Inventory, and Receivables Management. ***Due by Day 7*

Read and address the following points:

1. Calculate BB’s current cash conversion cycle.

23BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

there is a 1-week lead time and the firm would like a safety stock of 3%.

**Discussions**

**Discussions**

Participate in the following discussions:

**Option Pricing. ***1**st **Post Due by Day 3*. Discuss differences between the binomial option pricing model and the risk-neutral method of option pricing. Respond to at least two of your classmates’ postings.

**Option Pricing. ***1**st **st **Post Due by Day 3*

**Agency Problems. ***1**st **Post Due by Day 3*. Explain how agency problems may lead to non value-maximizing motives for mergers. Discuss the various academic theories offered as the rationale for motives induced by the agency problem. Respond to at least two of your classmates’ postings.

**Agency Problems. ***1**st **st **Post Due by Day 3*

**End of Course Survey**

**End of Course Survey**

**End of Course Survey**. *Due by Day 7*. After you have completed the End of Course Survey, please complete the one question quiz to receive your points. If for any reason you wish not to complete the survey, you may do so and still receive the 0.5 points by completing the one question quiz.

**End of Course Survey***Due by Day 7*

**Final Paper**

**Final Paper**

**Final Paper. ***Due by Day 7*. Develop a well-written, researched paper. Your paper should address one of the topics listed below. Consider these topics from the perspective of a corporate finance officer.

**Final Paper. ***Due by Day 7*

Topics:

• Corporate Financing: Long Term and Short Term

•

• Stock Valuation, Risk and Returns

•

• Options, Derivatives

•

In your paper:

• Describe the selected topic in relation to a corporate environment.

•

• Analyze the roles and responsibilities in making these decisions for the organization.

•

• Explain how to monitor their performance.

•

26BUS657: CORPORATE MANAGERIAL FINANCE COURSE GUIDE

• Explain how to alert the leaders of the organization to any anomalies or opportunities.

•

•