Chapter 1

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Chapter 1

5. The late Supreme Court Justice Antonin Scalia argued that because courts are not elected representative bodies, they have no business determining certain critical social issues. He wrote:

Judges are selected precisely for their skill as lawyers; whether they reflect the policy views of a particular constituency is not (or should not be) relevant. Not surprisingly then, the Federal Judiciary is hardly a cross-section of America. Take, for example, this Court, which consists of only nine men and women, all of them successful lawyers who studied at Harvard or Yale Law School. Four of the nine are natives of New York City. Eight of them grew up in east- and west-coast States. Only one hails from the vast expanse in-between. Not a single South westerner or even, to tell the truth, a genuine Westerner (California does not count). Not a single evangelical Christian (a group that comprises about one quarter of Americans), or even a Protestant of any denomination. To allow [an important social issue] to be considered and resolved by a select, patrician, highly unrepresentative panel of nine is to violate a principle even more fundamental than no taxation without representation: no social transformation without representation.

Do you agree?

 

Chapter 2

7. What percentage of your income should you donate to charities? Which charities are most worthwhile? Peter Singer, a Princeton professor, argues that people should give away one-third of their income to worthy charities. But, when entertainment mogul David Geffen donated $100 million to renovate a New York concert hall, Singer said that he could not understand “how anyone could think that giving to the renovation of a concert hall that could impact the lives of generally well-off people living in Manhattan and well-off tourists that come to New York could be the best thing that you could do with $100 million.” He added that a donation of less than $100 could restore sight to someone who is blind. To what theory of ethics is Professor Singer subscribing? Do you agree with him? What obligation do you have to help others? What is the best way to help others?

8. I was working on a trading desk. One year, my team did not make its number, which meant no bonuses and maybe even some of us would be fired. My boss was a good friend of the head of our division so the head agreed to “reallocate” some of the profit from other teams to ours. So my team got a bonus. When I asked my boss about the ethics of this action, she was annoyed that I was not just grateful. What ethics traps did I face? What should I have done? What is the best way to implement my decision?

9. I was a plant manager at a factory that used a lot of steel equipment. When a piece of equipment failed and was not worth repairing, it was sold for scrap. Plant managers usually kept the scrap money for themselves without telling headquarters. That money was considered an unofficial bonus. (After all, the equipment was no longer functional, and plant managers are underpaid.) I felt a little uncomfortable taking the money, but my boss warned me that, if I didn’t, I would make the other plant managers look bad. I could have paid off my credit card debt with that money but, instead, I hosted an employee BBQ and bought work boots for the low-wage workers. Did I do the right thing? What traps did I face?

Running head: CASE STUDY #5

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Running head: CASE STUDY #5

4

CASE STUDY #5

Case Study #5

Recruitment Sources

This case focuses on recruitment sources and their effectiveness. Horvath (2015) describes recruitment sources as, “…the means through which job seekers learn about job openings or organizations,” (p.126). Dexter, the manager of nonexempt employment, works for Keepon Trucking Company and is trying to figure out the effectiveness of certain staffing processes, which included the recruitment sources being used. In order to fill 100 spots for a 3-year job, three types of recruitment were used. Dexter now wants to study the three type of recruitment sources used to see how effective they were.

Effectiveness of Recruitment Sources.

Yield Ratios. Each recruitment source listed varies in their yield ratios depending on the number of applicants, offer receivers, and new hires. In order to get the yield ratios, the offer receivers were divided the number of applicants, and the new hires was divided by the applicants as well. For the newspaper ads, the number of applicants was 300 so this would act at the denominator in both equations. The offer receivers’ equation would read as 70/300, while the other would be 50/300. This would result in yield ratios of 23.3% and 16.7% respectively. These ratios show that employee referrals produced the highest ratio among the other sources, showing a better chance for applicants to be hired and offered jobs.

Time Lapse. Following this same method for the employee referral and employment agency, those would be 50% for both offer receivers and new hires for employee referrals, and then 5% in each category for the employment agency. Then there is the time lapse for each type of recruitment. The employee referral averages 10 days to start and 10 days to offer. The second best would be the employment agency which would offer the same average on days to start but the days to offer increases by 10 to equal 20. This increase is also seen in newspaper ads with a day to start average of 10 like the previous two, but in the variable of days to offer, 30 days would be the average.

Retention Rates. Employee referrals have a better average out of the three, a trend that continues when it comes to retention rates. Employee referrals saw a retention rate 90% with 27 of their 30 new hires staying on. Newspaper ads had 35 of their 50 new hires staying on after six months which produced retention rate of 70%. The employee agency surprisingly was only able to retain 8 of their 20 employees resulting in a 40% retention rate. This data shows that employee referrals seem to be the most effective in this case. They provide the best ratios in the topic of staffing data in each field that it has been compared to the other sources.

Reason for Differences.

A huge difference is the numbers of applicants. With the employee referrals having a significant smaller number of applicants than newspaper ads and employment agencies, there allowed for a higher yield ratio in comparison. By decreasing the pool for the other two sources or even increasing the offer receivers, there would be a significant increase in the yield ratios. These numbers were more efficient due to the fact that employees understand what is required of a prospective employee more than newspapers ads and employment agencies can tell. They know the inner most workings of the organizations and what they are looking for in an employee. This knowledge allows an employee to refer people that they know are right for the job. Even with this, since the managers know the work the employee who referred the candidate, they will trust their referral, making it easier in the selection process.

Newspaper ads can just offer a small description of what an employer is looking for. That brief description can only provide so much information which is why the pool is so large compared to referrals. With employment agencies, while most of them work with businesses to choose the right people for certain jobs, not every test is effective and or even custom made for the business. They are usually just people who want jobs, whether they are temporary or not. This could provide an explanation as to why retention is so low among this recruitment source. Employment agencies are known for providing flexible staffing services so sometimes the position they are currently working in may not be something that are going to have for more than six months.

Recommendations

An idea is for Dexter to find the average tenure for some employees and test his ratios, time lapses, and retention rates against those. Instead of using six months which is not even a long time, it might be beneficial to see these numbers based on a five-year scale. Employers must be looking for employees that can fill more permanent positions so Dexter could benefit from seeing a trend. Starting at six months, then one year, and then three years, ending at five years. This would allow more data to see which recruitment source is effective, not just for the short term but for the long term as well. If Dexter is able to do this, then it would just provide more solidified data for him to base decisions off of. This would allow his company to see what source they should be investing more time and effort into promoting in the future.

Another recommendation would be for Dexter to compare the data he has gathered with other reputable companies who have conducted similar research. This might allow him to expand on and maybe include more variables in order to make his research more focused. For example, the case explains how all applicants were, “subjected to a common application, (Heneman, Judge, & Kammeyer-Mueller, 2015, p.667). This needs to be more specific so these potential employees can be aware of what they are getting into. This could be a reason why retention is so low among the employment agency. These applicants are just being given something generic, not specific to the company, so the idea of what the company is, is not what they are exposed to when the get the job. As stated above, employment agencies may not be hiring workers who are permanent. This may be something that Dexter looks into to make sure the data he collects is on new hires staying on board for a long period of time. This could be affecting the data he received from his research.

What is the NPV of the project?

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What is the NPV of the project?
3. Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $139,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $594,000 per year. The fixed costs associated with this will be $198,000 per year, and variable costs will amount to 18 percent of sales. The equipment necessary for production of the Potato Pet will cost $658,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy’s is in a 40 percent tax bracket and has a required return of 12 percent.

Required:
Calculate the Time 0 cash flow for this project.
Calculate the annual OCF for this project
Calculate the payback period for this project.
Calculate the NPV for this project
Calculate the IRR for this project
4.use the following returns for X and Y.

Returns
________________________________________
Year    X    Y
1            22.8    %                29.4    %
2        –    17.8                –    4.8
3            10.8                    31.4
4            21.6                –    16.6
5            5.8                    35.4
________________________________________

Requirement 1:
Average returns
Requirement 2:
Calculate the variances for X and Y.
Requirement 3:
Calculate the standard deviations for X and Y.
A stock has had the following year-end prices and dividends:

Year    Price    Dividend
1    $ 64.48        —
2    71.35        $ 0.63
3    77.15        0.68
4    63.42        0.74
5    73.41        0.83
6    81.25        0.90
________________________________________

5. What are the arithmetic and geometric returns for the stock?

6. Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,000, and the company expects to sell 1,450 per year. The company currently sells 1,950 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,770 units per year. The old board retails for $21,900. Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,400,000 per year, and fixed costs are $1,300,000 per year.

Required:
If the tax rate is 38 percent, what is the annual OCF for the project?

How does Torrington fit with the Timken Company? What are the expected synergies?

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  1. How does Torrington fit with the Timken Company? What are the expected synergies?
  2. What is your stand alone valuation of Torrington?
  3. What is your with-synergies valuation of Torrington?
  4. Should Timken be concerned about losing its investment-grade rating? How do Timken’s financial ratios compare with those of other industrial firms in 2002? How would those ratios change if Timken financed the acquisition with debt?
  5. What is the price Ingersoll-Rand is likely to accept? Is Ingersoll-Rand likely to want a cash deal or a stock-for-stock deal?
  6. Should Timken go forward with the acquisition at all?
  7. If Timken decides to go forward with the acquisition, how should they structure the deal in terms of the price offered and the method of payment? What is the recommended bidding and negotiation strategy?

Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 6%. What will be the expected return of equity after this transaction?

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5. Hardmon Enterprises is currently an all-equity firm with an expected return of 12%. It is considering borrowing money to buy back some of its existing shares, thus increasing its leverage.

  1. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 6%. What will be the expected return of equity after this transaction?
  2. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this amount of debt, Hardmon’s debt will be much riskier. As a result, the debt cost of capital will be 8%. What will be the expected return of equity in this case?
  3. A senior manager argues that it is in the best interest of the shareholders to choose the capital structure that leads to the highest expected return for the stock. How would you respond to this argument?

6. Suppose Microsoft has no debt and a WACC of 9.2%. The average debt-to-value ratio for the software industry is 5%. What would be its cost of equity if it took on the average amount of debt for its industry at a cost of debt of 6%?

7. Your firm is financed 100% with equity and has a cost of equity capital of 12%. You are considering your first debt issue, which would change your capital structure to 30% debt and 70% equity. If your cost of debt is 7%, what will be your new cost of equity?

student A

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student A

Facts: Danny and Marion Klein were injured when part of a fireworks display went astray and exploded near them. They sued Pyrodyne Corp., the pyrotechnic company that was hired to set up and discharge the fireworks. The Kleins’ alleged, among other things, that the company should be strictly liable for damages caused by the fireworks display. Will the court agree with the Kleins’? What factors will the court consider in making its decision? Discuss fully.

Issue: Is Pryodyne Company strictly liable for participating in abnormally dangerous activity?

Rule: The plaintiff must prove that the defendant had a duty which was breached causing damage. “Strict liability for damages proximately caused by an abnormally dangerous, or ultra-hazardous, activity is one application of strict liability. Courts apply the doctrine of strict liability in these situations because of the extreme risk of the activity. Abnormally dangerous activities are those that involve a high risk of serious harm to persons or property that cannot be completely guarded against by the exercise of reasonable care” as stated in the book.

Application: Duty is that of a reasonable care to all audience when a fireworks displays is present. When a company that produces and supplies fireworks or rockets in the intent to light them up near by an audience, crowd, or in public they should foresee that there is a high risk of a serious personal injury or damage cause to chattel. The court will take under consideration that a public firework show is considered an abnormally dangerous activity, which is a factor for strict liability. I do believe that the court will sight with the Kleins’ complaint because even though an injury is foreseeable, Pryodyne Company should have had professional staff that was properly trained to handle a malfunction of some short in order to prevent a serious injury like what the Kleins’ sadly experienced. If the Kleins’ knew that such injury would have accrued to them, I am sure they both would have not taken that risk as well as other nearby bystanders. I also feel that the court will find it very unreasonable for the Kleins’ to have to pay for their own medical expenses caused by an event that was put to entertain individuals not hurt them. Even though this was obviously an accident, Pryodyne Company will be held responsible because they should have been aware of the dangers fireworks can undertake.

Conclusion: Based on the forgoing analysis, Pryodyne Company will be held strictly liable for participating in abnormally dangerous activity.