Personal Financial Planning Case Study

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Personal Finance Case #5

Dan and Sue Koogler, 29 and 28, are trying to get ahead financially. They also want to buy two “big ticket” items (a house and a car) and pay for Dan to complete his college degree requirements. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. The couple also has very little savings and would like to be able to put some money aside.

The Kooglers are parents of a pre-school child and Sue is a stay-at-home mom. Dan is the sole breadwinner and earns $40,000 annually. Sue is interested in returning to the labor force but concerned about whether child care costs and taxes would wipe out whatever she would earn.

Unfortunately, the Kooglers are starting to face some financial difficulty. Monthly payments on their debts are consuming a greater percentage of their income and, along with their mortgage, don’t leave them much income for other expenses. The couple has absolutely no money in savings for emergencies.

Another indicator of financial distress is the couple’s negative net worth. In other words, they owe more than they own. The couple’s assets total $100,600 and include $1,000 in a checking account, $2,600 in Dan’s 401(k), a $84,000 condo, and two cars and personal property worth $13,000.

On the debt side, the couple owes $84,000 on their mortgage, two personal loans totaling $10,000, $7,000 on a credit card, $7,193 on a time share, and $13,000 to Sue’s parents. Their net worth (assets minus debts) is, thus, minus $20,593.

Dan says he would like to retire when he is 55 and “live comfortably and independently.” Neither Sue nor Dan has IRAs, however, and Dan has stopped contributing to his employer 401(k). The couple has no wills. “I don’t have money to pay a lawyer to do the will and am not sure how to do it without a lawyer,” Dan explained.

The couple has $300,000 of term life insurance on Dan and family health insurance with a $250,000 per person limit paid for by Dan’s employer. They carry $300,000 of liability insurance on their cars and $65,000 of condo insurance. There is no disability insurance to cover the loss of Dan’s income should he be unable to work due to accident or illness.

 
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FIN 571 Week 3 Quiz

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1.The operating cycle

 

begins when the firm receives the raw materials it purchased that would be used to produce the goods that the firm manufactures.

 

begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.

 

To measure operating cycle we need another measure called the days’ payables outstanding.

 

ends not with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by the firm to pay for its purchases.

2.You are provided the following working capital information for the Ridge Company:

Ridge Company

Account$

 

Inventory$12,890

Accounts receivable12,800

Accounts payable12,670

 

Net sales$124,589

Cost of goods sold99,630

Operating cycle: What is the operating cycle for Ridge Company?

 

 

36 days

 

51 days

 

47 days

 

85 days

 

 

 

 

 

 

 

3.Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, use the EOQ formula to calculate the optimal order size.

 

 

124 clocks

 

15,294 clocks

 

26,154 clocks

 

161 clocks

4.The asset substitution problem occurs when

 

managers substitute riskier assets for less risky ones to the detriment of equity holders.

 

managers substitute less risky assets for riskier ones to the detriment of bondholders.

 

managers substitute less risky assets for riskier ones to the detriment of equity holders.

 

managers substitute riskier assets for less risky ones to the detriment of bondholders.

5.M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock.

 

How much are your cash flows today?

 

$150

 

$12.38

 

$15

 

$4.50

 

 

 

 

 

 

6.M&M Proposition 2: Melba’s Toast has a capital structure with 30% debt and 70% equity. Its pretax cost of debt is 6%, and its cost of equity is 10%. The firm’s marginal corporate income tax rate is 35%. What is the appropriate WACC?

 

 

8.80%

 

7.44%

 

8.17%

 

6.35%

 

7.According to the text, the financial plan covers a period of

 

 

one year.

 

ten years.

 

none of these.

 

three to five years.

 

8.The financing plan of a firm will indicate

 

 

the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the desired capital structure for the firm, and the firm’s working capital policy.

 

the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the firm’s dividend policy, and the firm’s working capital policy.

 

the firm’s dividend policy, the desired capital structure for the firm, and the firm’s working capital policy.

 

the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the desired capital structure for the firm, and the firm’s dividend policy.

 

 

 

9.Payout and retention ratio: Tradewinds Corp. has revenues of $9,651,220, costs of $6,080,412, interest payment of $511,233, and a tax rate of 34 percent. It paid dividends of $1,384,125 to shareholders. Find the firm’s dividend payout ratio and retention ratio.

 

 

25%, 75%

 

69%, 31%

 

34%, 66%

 

66%, 34%

 

1.The operating cycle

 

begins when the firm receives the raw materials it purchased that would be used to produce the goods that the firm manufactures.

 

begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.

 

To measure operating cycle we need another measure called the days’ payables outstanding.

 

ends not with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by the firm to pay for its purchases.

2.You are provided the following working capital information for the Ridge Company:

Ridge Company

Account$

 

Inventory$12,890

Accounts receivable12,800

Accounts payable12,670

 

Net sales$124,589

Cost of goods sold99,630

Operating cycle: What is the operating cycle for Ridge Company?

 

 

36 days

 

51 days

 

47 days

 

85 days

 

 

 

 

 

 

 

3.Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, use the EOQ formula to calculate the optimal order size.

 

 

124 clocks

 

15,294 clocks

 

26,154 clocks

 

161 clocks

4.The asset substitution problem occurs when

 

managers substitute riskier assets for less risky ones to the detriment of equity holders.

 

managers substitute less risky assets for riskier ones to the detriment of bondholders.

 

managers substitute less risky assets for riskier ones to the detriment of equity holders.

 

managers substitute riskier assets for less risky ones to the detriment of bondholders.

5.M&M Proposition 1: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock.

 

How much are your cash flows today?

 

$150

 

$12.38

 

$15

 

$4.50

 

 

 

 

 

 

6.M&M Proposition 2: Melba’s Toast has a capital structure with 30% debt and 70% equity. Its pretax cost of debt is 6%, and its cost of equity is 10%. The firm’s marginal corporate income tax rate is 35%. What is the appropriate WACC?

 

 

8.80%

 

7.44%

 

8.17%

 

6.35%

 

7.According to the text, the financial plan covers a period of

 

 

one year.

 

ten years.

 

none of these.

 

three to five years.

 

8.The financing plan of a firm will indicate

 

 

the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the desired capital structure for the firm, and the firm’s working capital policy.

 

the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the firm’s dividend policy, and the firm’s working capital policy.

 

the firm’s dividend policy, the desired capital structure for the firm, and the firm’s working capital policy.

 

the dollar amount of funds that has to be raised externally and the sources of funds available to the firm, the desired capital structure for the firm, and the firm’s dividend policy.

 

 

 

9.Payout and retention ratio: Tradewinds Corp. has revenues of $9,651,220, costs of $6,080,412, interest payment of $511,233, and a tax rate of 34 percent. It paid dividends of $1,384,125 to shareholders. Find the firm’s dividend payout ratio and retention ratio.

 

 

25%, 75%

 

69%, 31%

 

34%, 66%

 

66%, 34%

 

 

 
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Case Case Study 10.1 Amalgamated Polymers,

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Please read Case Study 10.1 Amalgamated Polymers, Inc. After reading Case Study 10.1, please answer the question below. pg 21 23

Instructions:

Please provide well- written and well-reasoned answers to the following discussion questions. Complete and submit the assignment by today.

 

Follow the guidelines in the Case Reflection Paper rubric below.

Prepare a list of possible questions that the investment committee might raise about the proposal. What should James Hyman’s responses be?

Submission Instructions:
All responses in this discussion forum must be professional, well-reasoned, well-written, and free from profanity. This discussion assignment should reflect the fact that this is a written product for a graduate professional program. All responses should be professional, and if you disagree with a submission, keep it professional.

GRADING RUBRIC for REFLECTION PAPER

Page 1 of 4

 

CRITERIA FAILS TO MEET EXPECTATIONS

0

NEEDS IMPROVEMENT

5

MEETS EXPECTATIONS

8

EXCEEDS EXPECTATIONS

10

YOUR SCORE

ORGANIZATION

Clearly organized

introduction, body,

conclusion

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria;

Disorganized and the

reader can not follow

the paper at any

length

Disorganized, leaves reader wondering

what is being said;

abrupt ending

Paper has intro, body, and conclusion

but may take a re-

reading to understand

Easy to read, topic introduced, organization

clearly evident with

proper introduction,

body, conclusion

 

Does this paper address the prompt

or the topic?

The topic of the paper is not addressed at all;

Fails to stick to the

topic therefore fails to

meet the criteria

Student does not clearly identify his/her

reflections about the

topic; may veer from

topic

The entire paper’s content relates to the

prompt or topic; the

student explains his/her

reflections about the

topic but may take a re-

reading to

understand

The student’s reflection about the topic is

explained in clear

language; immediately

interesting and supported

with detail

 

Paragraph Organization and

Writing Style: Ideas

are clearly

connected and

make sense

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria

Paragraphs are disorganized; ideas are

included which do not

relate to the main idea;

ideas are not connected

and have little or no

supporting details; one

sentence paragraphs

Each paragraph has a central idea that is

supported with details;

ideas are connected and

important points make

sense

Each paragraph has a central idea; ideas are

connected and

paragraphs are

developed with details;

paper is easy to read and

“flows” naturally in an

organized pattern

 

 

 

GRADING RUBRIC for REFLECTION PAPER

Page 2 of 4

CRITERIA FAILS TO MEET EXPECTATIONS

0

NEEDS IMPROVEMENT

5

MEETS EXPECTATIONS

8

EXCEEDS EXPECTATIONS

10

YOUR SCORE

ORGANIZATION

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria

Paper is shallow and does not present

detailed evaluation of

reflection about the

topic; little use of

business literature to

support thought

The paper shows that the student has

thought about the topic

although the written

presentation may

appear weak or lack

clarity; use of business

literature to support

thought

Paper provides evidence (through the use of

description, details, and

use of business

literature) that the

student has examined

his/her own belief

systems and related this

to their current views

about the topic; use of

business literature to

support thought

 

 

 

GRADING RUBRIC for REFLECTION PAPER

Page 3 of 4

 

CRITERIA

FAILS TO MEET EXPECTATIONS

0

NEEDS IMPROVEMENT

5

MEETS EXPECTATIONS

8

EXCEEDS EXPECTATIONS

10

YOUR SCORE

GRAMMAR

Basic writing expectations:

mechanics,

spelling,

grammar, or

punctuation

errors

More than 8 grammatical ,

punctuation, or BWE

errors

4-7 grammatical, punctuation , or

BWE errors

Between 1-4 grammatical,

punctuation, or

BWE errors, but

they are minor and

do not detract from

the paper

No errors whatsoever!

Use of transitions to connect

sentences and

ideas

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria

Choppy; sentences do not connect or

transition well; ideas

do not connect

Paper expresses the ideas of the author;

sentences relate to

one another; may

take a re-reading to

understand

Paper is easy to read and makes sense the first

time it is read. It is

interesting and well

written; sentences

connect and flow.

 

Correct choice of verb tenses, words, Avoidance of wordy phrases, correct use of pronouns

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria

Improper use of language or slang;

wrong word choice;

appears “padded”

Occasional wrong word choice;

somewhat wordy

but not enough to

detract from the

summary; May

occasionally use the

wrong tense.

 

 

No wrong word choice or slang; uses correct

verb tense and pronouns.

Well written and use of

words convey meaning

 

 

 

 

 

 

GRADING RUBRIC for REFLECTION PAPER

Page 4 of 4

 

CRITERIA

FAILS TO MEET EXPECTATIONS

0

NEEDS IMPROVEMENT

5

MEETS EXPECTATIONS

8

EXCEEDS EXPECTATIONS

10

YOUR SCORE

FORMATTING

Follows APA professional

writing style of

using 12 point

Times New

Roman font,

1inch margins all

around, correct

APA headings

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria; 3 or more

errors

Meets the criteria with 2 errors

Meets the criteria with 1 error

Exceeds this by completely meeting all

of these requirements

with NO exception!

 

Correct format of title page

including

running head,

page numbers,

correct page

justification

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria; 3 or more

errors

Meets the criteria with 2 errors

Meets the criteria with 1 error

Perfect title page, running head, page

numbers, and page

justification!

 

Correct use of citations within

paper according

to APA; Correct

APA reference

page

Fails to meet this criteria by obvious

disregard for the

expectations stated in

the criteria; 3 or more

errors

Meets the criteria with 2 errors

Meets the criteria with 1 error

Perfect use of citations within paper per APA

format; Correct reference

page!

 
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Discussing The Effects Of Globalization As A Form Of Modernization

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Scenario: Aminata and Ezra are discussing the effects of globalization as a form of modernization or Westernization of the world. Aminata points out all of globalization’s class and commercialized aspects—including the ubiquitous McDonald’s and Levis—that have negative effects on local cultures. For example, Western nations often purchase rainforests and valuable land overseas to graze cattle for cheap beef in fast food restaurants. Still, 8,000 children continue to die daily from hunger and malnutrition, around the globe, even while these Western franchises expand. They also sometimes employ child or slave labor to make many of their garments, in deplorable conditions, to import back to Western nations. She invokes the following African proverbs to lament the excessive materialism and lack of humanity reflected in globalization:

It is the human being that counts: I call upon gold, it answers not; I call upon cloth, it answers not; it is the human being that counts. ~Akan Proverb

and

An abundance of food at your neighbour’s will not satisfy your hunger. ~Bayaka Proverb

Ezra understands Aminata’s concerns but contends that globalization also produces many benefits including an increase in cross-cultural understanding, the transference of concerns for human rights and democracy, and the possibility for economic development. In fact, benefiting from one of these cross-cultural exchanges himself, Ezra quotes his American Zen teacher who often shares the famous koan: What do you call the world?

Ezra explains that while there is much suffering in the world, and we certainly should seize the opportunity for discussions and finding solutions, this koan is meant to get our minds to ask the important questions before reacting. What is the true nature of suffering? What is the real cause here? Can I effectively help a world that I see as separate from myself? Might it be more beneficial for me to deeply understand how the world is not something outside of myself that needs saving? Could daily mindfulness in my own small actions make more of an impact? (Kuruvilla, 2015).

Do you identify more with the position of Aminata or Ezra? What is your personal observation of these globalization issues, in light of what you learned from global ethical perspectives? Do the positives outweigh the negatives, or vice versa?

If some cultures are endangered by globalization, do we have a moral obligation to resist exporting our products or ideas? Explain your response, drawing upon both the Eastern and African ethical models we explored in this module. End with a proverb or koan that best reflects your own global philosophy.

250 words total. APA references

Question #2

There is a significant disparity between economically advantaged and disadvantaged nations. In some countries, people live on about $1 per day and the populations are malnourished and illiterate. Reasons for such contrasts among nations are population growth, absence of natural resources, colonialism, corruption, and the lack of freedom and education. Slavery and human trafficking are also at their highest levels in human history.

Choose a global issue that you believe requires immediate global action (hunger etc.), and explain why you chose this topic. Please share three specific, practical ways the average citizen can contribute to a solution.

Find and read a blog that discusses your chosen globalization issue. Please include a link to the blog, and discuss how it provides insight into this issue and/or effective remedies for it

250 Words total. APA references

 
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