...MBAs ------------------------------------------------- DISCUSSION QUESTIONS Q1-1. Organizations undertake planning activities that shape three major activities: financing, investing, and operating. Financing is the means a company uses to pay for resources. Investing refers to the buying and selling of resources necessary to carry out the organization’s plans. Operating activities are the actual carrying out of these plans. Planning is the glue that connects these activities, including the organization’s ideas, goals and strategies. Financial accounting information provides valuable input into the planning process, and, subsequently, reports on the results of plans so that corrective action can be taken, if necessary. Q1-2. An organization’s financing activities (liabilities and equity = sources of funds) pay for investing activities (assets = uses of funds). An organization’s assets cannot be more or less than its liabilities and equity combined. This means: assets = liabilities + equity. This relation is called the accounting equation (sometimes called the balance sheet equation), and it applies to all organizations at all times. Q1-3. The four main financial statements are: income statement, balance sheet, statement of stockholders’ equity, and statement of cash flows. The income statement provides information about the company’s revenues, expenses and profitability over a period of time. The balance sheet lists the company’s assets (what it owns), liabilities...
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...2003 CFA® Level II Examination Morning Session – Essay Candidate Number: FOR AIMR USE ONLY FOR AIMR USE ONLY _____ _____ _____ _____ _____ _____ THIS BOOK IS THE PROPERTY OF: Association for Investment Management and Research® 560 Ray C. Hunt Drive Charlottesville VA 22903-0668 USA Tel: 434-951-5499 © 2003 Association for Investment Management and Research. All rights reserved. The following list contains the command words used on the Morning Session of the 2003 Level II examination. Candidates may want to refer to this list as they formulate their answers. Calculate: Cite: Compute: Define: Determine: To ascertain or determine by mathematical processes. To quote by way of evidence, authority, or proof. To determine, especially by mathematical means. To set forth the meaning of; specifically, to formulate a definition of. To come to a decision as the result of investigation or reasoning; to settle or decide by choice among alternatives or possibilities. To transmit a mental image, an impression, or an understanding of the nature and characteristics of. To discourse about through reasoning or argument; to present in detail. To judge the value, worth, or significance of. To give the meaning or significance of; to provide an understanding of; to give the reason for or cause of. To establish the identity of; to show or prove the sameness of. To point out or point to with more or less exactness; to show or make known with a fair degree of certainty. To prove or...
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...Mobil is venturing into the US market and their launch date is July 2002. The company’s goal is to have one million total subscribers by the end of the first year and three million by year four. In order to achieve their goals, the company has to come up with a competitive pricing strategy to attract and retain customers in an already mature market. Recommended course of action Despite a mature US market, the cellular service industry has a market penetration of only about 15% in the segment comprising of users aged between 15 and 19 years. This segment is characterized by inconsistent cell phone usage, low credit ratings and usage pattern different from the typical businessperson. Hence, Virgin Mobile USA is looking to penetrate this segment and create brand loyalty through attractive pricing and additional feature in mobile entertainment. Based on our analysis, we recommend the following: 1. Aim for the non-contractual prepaid segment with a new pricing structure: Virgin Mobile USA should look to price at 20-30 cents per minute. 2. Increase the off peak hours: The company could extend the off-peak hours by 2 hours, starting at 7pm instead of 9pm. 3. Lowering of Acquisition Cost (AC): Virgin Mobile USA should keep its AC around $130 by passing on a part of the handset cost to the customers. Rationale for Recommendation We can see from Exhibits 1 & 2 that if Virgin Mobile opted for a contractual service plan with rates at par with industry average the Customer...
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...average per-minute charges, etc.). I will recommend third pricing strategy, which is to come up with a completely new plan, since we are trying to target a new market segment. The following will be the structure of the new price plan, which employs a revolutionary and aggressive approach. Subscription Type All of the plans will be prepaid thereby completely eliminating the need for indulging into contracts. The subscription will come into packages that resemble consumer electronic packaging and would be plug_and_play when you buy them. Contracts: Since the plans will be all prepaid, the services will be offered without indulging into a contract. This will allow e.g. the teenagers 14-17 to be able to get the subscription because otherwise they are not eligible to sign the contracts. This is clearly an untouched segment and will bring lot of new customers. However the risk of churn will be increased to 6% per month, but that will be catered into pricing calculations given in the end. Handset Subsidies: All customers will be offered handset subsidies at 50% of the handset costs. This will reduce the subscription price and hence enabling the young customers to afford the plan. Hidden fees and Off-peak hours: All plans will have no hidden fees or charges. The price plans will includes all cost calculations and will be based on the idea as ‘what you see is what you get’. The peak and off-peak distinguishing will be completely eliminated and the buckets of minutes will have...
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...significant time in understanding case facts. The circular logic used in allocating fixed costs based on the product mix that in turn is used in deciding the product mix takes some time to understand. Third, because of the participant background, they have difficulty in translating the model to the specific business situation and interpreting the trade-offs involved in various what-if analyses that are prompted by the case questions. We return to the case when we teach duality. After explaining duality, we analyze the case to show how some of the questions and what-if analyses can be simplified using duality. This note is based on our experiences with teaching three large batches of students in our MBA programs. 1 1 Without Duality: (2 × 70) minutes We use the case to illustrate the following issues: • Analyze case facts: – What is the factual basis for some of the opinions expressed? – Where did the overhead cost numbers shown in Table B come from? – Is it appropriate to allocate fixed costs as done in Table C? • Decision making alternatives: – Evaluate one product suggestions and current product-mix. –...
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...increasing the amount of investment (assuming it is a profitable investment). So, dollar profits are not necessarily a meaningful way to look at financial performance. Using return on investment in our analysis, whether as investors or business managers, requires us to focus not only on the income statement, but also on the balance sheet. Q4-2.B ROE is the sum of an operating return (RNOA) and a nonoperating return (the effective use of financial leverage – specifically, leverage multiplied by the spread). Increasing leverage increases ROE as long as the spread is positive. Financial leverage is also related to risk: the risk of potential bankruptcy and the risk of increased variability of profits. Companies must, therefore, balance the positive effects of financial leverage against their potential negative consequences. It is for this reason that we do not witness companies entirely financed with debt. Q4-3. Gross profit margins can decline because 1) the industry has become more competitive, and/or the firm’s products have lost their competitive advantage so that the company has had to reduce prices or is selling fewer units or 2) product costs have increased, or 3) the sales mix has changed from higher margin/slowly turning products to lower margin/higher turning products. Declining gross profit margins are usually viewed negatively. On the other hand, cost increases that reflect broader economic events or certain strategic product mix changes might not be viewed negatively...
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...P6-38 (30 minutes) a. Best Buy (a retailer) reports a much higher receivables turnover rate than does the manufacturer, Caterpillar. The likely reason for this is that retail sales are usually via cash, check, or credit cards (which are like cash for the retailers). Recall that the turnover ratio includes credit sales, but, because most firms do not report credit sales, we are forced to use total sales when we calculate the turnover ratio. Using total sales instead of credit sales overstates the turnover ratio. Manufacturers, on the other hand, usually sell to retailers on credit and the accounts are not collected for a much longer period of time. CAT has a finance subsidiary that provides loan and lease financing. The longer term of these receivables reduces turnover rates. Walmart, on the other hand, is primarily cash-and-carry, hence its high turnover rate for accounts receivable. b. Dell’s relatively higher inventory turnover rate, compared with Caterpillar, most likely reflects the fact that Dell builds to order, not in anticipation of demand. That is, raw materials are not acquired until needed in the production process and components are built by sub-contractors. Both of these techniques reduce the amount of work-in-process inventories that Dell must carry. In addition, Dell does not generally inventory finished products since production commences once the order is placed by its customers. CAT, on the other hand, builds a relatively smaller...
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...Module 9 Intercorporate Entities DISCUSSION QUESTIONS Q9-1. (a) Trading securities are reported at their fair value in the balance sheet. (b) Available-for-sale securities are reported at their fair value in the balance sheet. (c) Held-to-maturity securities are reported at their amortized cost in the balance sheet. For marketable securities, fair value and market value are usually synonymous. Thus, trading and available-for-sale securities are recorded on the balance sheet at market value. Q9-2. An unrealized holding gain (loss) is an increase (decrease) in the fair value of an investment security that is still owned. Q9-3. Unrealized holding gains and losses related to trading securities are reported in the current-year income statement (which flows to retained earnings). Unrealized holding gains and losses related to available-for-sale securities are reported as part of a separate component of stockholders' equity called Accumulated Other Comprehensive Income (AOCI). Q9-4. Significant influence gives the owner of the stock the ability to significantly influence the operating and financing activities of the company whose stock is owned. Normally, a 20% through 50% ownership of the company's voting stock provides evidence of significant influence. The equity method is used to account for investments with significant influence. Such an investment is initially recorded at cost; the investment is increased by the proportionate share of the...
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...Virgin Mobile USA: Pricing for the Very First Time Company Background Introduction Case Background Issue of Concern Market Research Analysis All Options Theory Application Calculation Virgin Response Conclusion Recommendations Inviting Questions 2 Introduction Analysis Conclusion Company Background • Virgin, a leading branded venture capital organization, is one of the world's most recognized and respected brands. • Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow very successful business in sectors ranging from mobile telephony, to transportation, travel, financial services, leisure, music, holidays, publishing and retailing. • Virgin has created more than 200 branded companies worldwide, employing approximately 50,000 people, in 29 countries. Case Background Issue of Concern [Source: company website Available from: http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx] 3 Introduction Analysis Conclusion Company Background Case Background Issue of Concern 4 Introduction Analysis Conclusion Company Background Case Background Issue of Concern Sir Richard Charles Nicholas Branson (born 18 July 1950), is an English entrepreneur, best known for his Virgin brand, a banner that encompasses a variety of business organizations. The name Virgin was chosen because a female friend involved in setting down the initial record shop commented that there...
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...Indian mobile industry is at the cross-roads now. After growing at a fast pace in the last couple of years, the subscriber addition has declined significantly and the operator revenues are not growing. The interest of foreign players is waning and some of the operators are now in the process of shutting down their operations. The article would not only give an overview of the industry but would also delve into the reasons for the decline in the fortunes of this industry. Indian telecom industry has been hailed as the proof of India’s progress post liberalization. The country actually leapfrogged to the mobile platform bypassing the fixed line. Since in India, the fixed line subscribers are not even 5% of the mobile subscriber base, in this article, I am going to talk about mobile subscribers and its market only. The country was divided into 23 circles when the mobile phones were introduced in the country. Separate licenses were given out for each of the circles in 1994. The circles were classified as Metros, A, B or C depending upon the revenue potential for the circle with Metros & A circles expected to have the highest potential. The mobile operators brought in a lot of innovations like outsourcing of networks, focus on prepaid, etc. to make the mobile services affordable to the masses. As a result, the prices declined significantly over the years and the base continued to increase. The chart below gives a good overview of the various events in the industry over the years...
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...CONSULTING CLUB CASEBOOK 2004/2005 CASES Page 6 of 48 Copyright 2004, Do not copy or distribute without permission CONSULTING CLUB CASEBOOK 2004/2005 SOURCE / FIRM: DATE / CONTEXT: ISSUES COVERED: ISSUE/PROBLEM POSED: INFORMATION PROVIDED: SOLUTION: OTHER USEFUL TIPS: Page 9 of 48 BOOZ ALLEN HAMILTON 2nd round interview for summer internship 2004 Brainteaser Estimation How would you value a football (soccer) player? Business Case None I went around the houses a bit on this one. Identified sources of revenue for a football club including: Ticket revenue, Revenue from TV coverage, Sponsorship Merchandise sales (e.g. shirts) Talked around how to determine the contribution that an individual player makes to those revenue streams The final conclusion was that the best way to divide the portion of revenue related to the actual players (over their lifetime) between the team would be based on individual ratings (like those published for each player in the fantasy football league) Talked around valuation as the present value of future cash flows related to each player Open discussion with structure maintained through making notes and drawing tree diagrams was appreciated – used diagrams as prompt for directing discussions Copyright 2004, Do not copy or distribute without permission CONSULTING CLUB CASEBOOK 2004/2005 SOURCE / FIRM: DATE / CONTEXT: ISSUES COVERED: ISSUE/PROBLEM POSED: INFORMATION PROVIDED: SOLUTION: ...
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...The Saturn V rocket was the launch vehicle that launched the Apollo missions to the moon and even launched America’s first space station. The vehicle arose from Cold War tension and President Kennedy’s vow that America would go to the moon by the end of the decade. It launched using the following stages: the S-IC, the S-II, and the S-IVB. The purpose of the S-IC was to supply the initial lift-off needed for the trip to the moon. The 138 foot tall S-IC employed the F-1 liquid fueled rocket engine to attain the stage’s needed altitude and speed. The F-1 is the most powerful liquid fueled rocket engine ever developed with a single nozzle and was fueled by RP-1, a highly refined form of kerosene, and liquid oxygen. The liquid oxygen was used as...
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...2004 CFA® Level III Examination Morning Session – Essay Candidate Number: FOR AIMR USE ONLY FOR AIMR USE ONLY _____ _____ _____ _____ _____ _____ _____ THIS BOOK IS THE PROPERTY OF: Association for Investment Management and Research® 560 Ray C. Hunt Drive Charlottesville VA 22903-0668 USA Tel: 434-951-5499 © 2004 Association for Investment Management and Research. All rights reserved. The following list contains the command words used on the Morning Session of the 2004 CFA Level III examination. Candidates may want to refer to this list as they formulate their answers. Calculate: Describe: To ascertain or determine by mathematical processes. To transmit a mental image, an impression, or an understanding of the nature and characteristics of. To come to a decision as the result of investigation or reasoning; to settle or decide by choice among alternatives or possibilities. To discourse about through reasoning or argument; to present in detail. To give the meaning or significance of; to provide an understanding of; to give the reason for or cause of. To put in a systematized statement or expression; to prepare according to a formula. To yield or furnish as a product, consequence, or effect; to offer for the consideration, acceptance, or use of another. To establish the identity of; to show or prove the sameness of. To point out or point to with more or less exactness; to show or make known with a fair degree of certainty. To form an opinion about through careful...
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...dividend growth rate is also the capital gains yield How to estimate the dividend growth; product of the retention ratio and the ROE Example: Earnings of a corporation this year is $10 million. Retention ratio is 75% and the historical ROE is 12%. The number of shares outstanding is 1.25 million and the current price of the stock is $30. What is the stock’s required rate of return? Example – Non-constant dividend growth: A company just announced a dividend of $1.20 per share. Dividends are expected to grow annually at 3%, 4% and 5%, respectively, for the next 3 years. Then, the dividends are expected to grow at a constant rate of 6%, forever. If the stock’s required rate of return is 12% what is the current price of the stock? An alternative to the discounted dividend model The company is expected to continue to do what it does right now without any growth opportunities. In this case it earns its current earnings per share (EPS) in perpetuity. If the company does have additional growth opportunities, find the net present value of the growth opportunities (NPVGO) per share and add it to the present value of the perpetual EPS. Example: Company expects to earn $100 million in perpetuity if it does not undertake any new projects. The firm has an opportunity that requires an investment of $15 million today and $5...
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...mean Like · · Share · about an hour ago · Rance Vidal and 4 other friends recently read articles. Newly discovered color photos from inside Hitler’s private home Lawyer withdraws $7.5 million dollar lottery claim Toyota confirms loss of No. 1 carmaker spot iPhone’s Siri swears at 12-year-old boy? Forget Mayan 2012 prediction, expert says the world ends in 500 million years 47 minutes ago via Yahoo! Elferd Gonzales Ganal Darna!!! Like · · about an hour ago · Grace Orense and Francis Jayson Saludo like this. Elferd Gonzales Ganal Magpashoot ka .. about an hour ago · Like Francis Jayson Saludo hahahaha.. about an hour ago · Like Fhevee Sable Kelly, Daryl, Russel, Jacky, Rachel, Kenn and Nathalie See you soon again♥ bitin kanina!!! Like · · Share · 59 minutes ago · 2 people like this. Fhevee Sable Hahahah! hindi ba sched na yan ng kasal ni Che? 47 minutes ago · Like Jacky Delos Reyes 16 yung kasal niya 23 minutes ago · Like Rance Vidal shared Jessa Cataluña's photo. Jessa Cataluña's Photos Something worth sharing. ^_* By: Jessa Cataluña Like · · Share · 36 minutes ago · Nina Enriquez I WAAAAAAAAAAANT >.< Like · · Share · 44 minutes ago · Isiah Aquino and 4 others like this. Isiah Aquino sa moken na yan :) 40 minutes ago · Like Arvin Lenard ang pogi ko tlga ! nung hini pa ko kalbo xD Like · · 3 hours ago · Arvin Lenard and 3 others like this. Armina Polintan Elepaño ?????? :P 3 hours ago · Like ...
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