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billing rather than credit cards.

Each salesclerk has her own sales book with prenumbered, three-
copy, multicolored sales sli

The separation of operational responsibility from record keeping is meant to prevent different
types of misstatements than the separation of the custody of assets from accounting. Explain the
difference in the purposes of these two types of separation of duties.

Describe which of the three categories of broad objectives for internal controls are considered by
the auditor in an audit of both the financial statements and internal control over financial
reporting.

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(Evaluating Payment Alternatives) Terry O’Malley has just learned he has won a $900,000
prize in the lottery. The lottery has given him two options for receiving the payments: (1) If
Terry takes all the money today, the state and federal governments will deduct taxes at a rate of
46% immediately. (2) Alternatively, t

Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy
Corporation, for the year ended December 31, 2011. Henderson Energy is regulated by the state
utility commission and because it is a publicly traded company the audited financial statements
must be filed with the Securities and Exchange

What is the auditor's responsibility for obtaining an understanding of internal control? How does
that responsibility differ for audits of public and nonpublic companies?

Chapter 8 introduced the eight parts of the planning phase of an audit. Which part is the
evaluation of materiality and risk?

Distinguish the auditor's responsibility for testing controls in an integrated audit of a public
company from the responsibility to test controls in an audit of a nonpublic company.

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Describe the three broad objectives management has when designing effective internal control.

Multiple Choice Questions The following questions deal with assessing control risk in a financial
statement audit. Choose the best response. a. The auditor's tests of controls revealed that required
approvals of cash disbursements were absent for a large number of sample transactions
examined. Which of the following is

Explain what is meant by independent checks on performance and give five specific examples.

Bohrer, CPA is considering the following factors in assessing audit risk at the financial statement
level in planning the audit of Waste Remediation Services (WRS), Inc.'s financial statements for
the year ended December 31, 2011. WRS is a privately-held company that contracts with
municipal governments to close landfi

Explain the circumstances when the auditor should revise the components of the audit risk model
and the effect of the revisions on planned detection risk and planned evidence.

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Describe what is meant by acceptable audit risk. Explain why each of the following statements is
true: Required a. A CPA firm should attempt to achieve the same audit risk for all audit clients
when circumstances are similar. b. A CPA firm should decrease acceptable audit risk for audit
clients when external users rel

Planning is one of the most demanding and important aspects of an audit. A carefully planned
audit increases auditor efficiency and provides greater assurance that the audit team addresses
the critical issues. Auditors prepare audit planning documents that summarize client and industry
background information and discus

Lew Pherson and Vera Collier are friends who are employed by different CPA firms. One day
during lunch they are discussing the importance of internal control in determining the amount of
audit evidence required for an engagement. Pherson expresses the view that internal control must
be evaluated carefully in all compan

The following are partial descriptions of internal controls for companies engaged in the
manufacturing business: 1. When Mr. Clark orders materials, he sends a duplicate purchase order
to the receiving department. During the delivery of materials, Mr. Smith, the receiving clerk,
records the receipt of shipment on this

Give examples of risk factors for fraudulent financial reporting for each of the three fraud
conditions: incentives/pressures, opportunities, and attitudes/rationalization.

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Each of the following internal controls has been taken from a standard internal control
questionnaire used by a CPA firm for assessing control risk in the payroll and personnel cycle. 1.
Approval of department head or foreman on time cards is required before preparing payroll. 2.
All prenumbered time cards are accounte

This problem requires the use of ACL software, which is included in the CD attached to the text.
Information about installing and using ACL and solving this problem can be found in Appendix.
You should read all of the reference material preceding instructions about "Quick Sort" before
locating the appropriate command t
Explain what is meant by making an estimate of the total misstatement in a segment and in the
overall financial statements. Why is it important to make these estimates? What is done with
them?

Multiple Choice Questions The following are general questions about internal control. Choose
the best response. a. When considering internal control, an auditor must be aware of the concept
of reasonable assurance, which recognizes that the (1) Employment of competent personnel
provides assurance that management's con

Below are ten independent risk factors: 1. The client lacks sufficient working capital to continue
operations. 2. The client fails to detect employee theft of inventory from the warehouse because
there are no restrictions on warehouse access and the client does not reconcile inventory on hand
to recorded amounts on a t

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You are evaluating audit results for assets in the audit of Roberts Manufacturing. You set the
preliminary judgment about materiality at $50,000. The account balances, tolerable
misstatement, and estimated overstatements in the accounts are shown next. a. Assume you
tested inventory amounts totaling $1,000,000 and f

The division of the following duties is meant to provide the best possible controls for the
Meridian Paint Company, a small wholesale store: †1. Approve credit for customers included
in the customer credit master file. †2. Input shipping and billing information to bill customers,
record invoices in the sales journa

What is meant by the control environment? What are the factors the auditor must evaluate to
understand it?

Describe how the nature of evidence used to evaluate the control environment differs from the
nature of evidence used to evaluate control activities.

The auditor's risk assessment procedures identified several risks that the auditor deems to be
significant risks. Several internal controls exist that are designed to mitigate the risks identified.
Describe the auditor's responsibilities for considering those controls in the current audit.

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Describe the concept of an integrated audit of the financial statements and internal control
required by PCAOB standards.

What is a walkthrough of internal control? What is its purpose?


Assume a company with the following balance sheet accounts: You are concerned only about
overstatements of owner's equity. Set tolerable misstatement for the three relevant accounts such
that the preliminary judgment about materiality does not exceed $5,000. Justify youranswer.

Following are descriptions of ten internal controls. 1. The company's computer systems track
individual transactions and automatically accumulate transactions to create a trial balance. 2. The
company must receive university transcripts documenting all college degrees earned before an
individual can begin their first d

You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set
the preliminary judgment about materiality for current assets at $15,000 for overstatements and
at $22,500 for understatements. The preliminary and actual estimates are shown next. Required
a. Justify a lower preliminary ju

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You are auditing payroll for the Morehead Technologies Company for the year ended October
31, 2011. Included next are amounts from the client's trial balance, along with comparative
audited information for the prior year. You have obtained the following information to help you
perform preliminary analytical procedur

During the prior-year audits of McKimmon Inc., a private company, the auditor did tests of
controls for all relevant financial statement assertions. Some of the related controls are manual
while others are automated. Describe the extent the auditor can rely on tests of controls
performed in prior years.

The following are misstatements that have occurred in Fresh Foods Grocery Store, a retail and
wholesale grocery company: 1. The incorrect price was used on sales invoices for billing
shipments to customers because the wrong price was entered into the computer master file of
prices. 2. A vendor invoice was paid even tho

What is meant by using bases for setting a preliminary judgment about materiality? How will
those bases differ for the audit of a manufacturing company and a government unit such as a
school district?

What two conditions must be present for the auditor to issue an unqualified opinion on internal
control over financial reporting? What type of condition will cause the auditor to issue a
qualified or disclaimer of opinion on internal control over financial reporting?

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Following are six situations that involve the audit risk model as it is used for planning audit
evidence requirements in the audit of inventory. Required a. Explain what low, medium, and
high mean for each of the four risks and planned evidence. b. Fill in the blanks for planned
detection risk and planned evidence u

Jeanne Maier, CPA, believes that it is appropriate to obtain an understanding of internal control
about halfway through the audit, after she is familiar with the client's operations and the way the
system actually works. She has found through experience that filling out internal control
questionnaires and flowcharts ea

In Parts I and II of this case, you performed preliminary analytical procedures and assessed
acceptable audit risk and inherent risk for Pinnacle Manufacturing. Your team has been assigned
the responsibility of auditing the acquisition and payment cycle and one related balance sheet
account, accounts payable. The gener

Winston Black was an audit partner in the firm of Henson, Davis & Company. He was in the
process of reviewing the audit files for the audit of a new client, McMullan Resources.
McMullan was in the business of heavy construction. Black was conducting his first review after
the audit was substantially complete. Normally,

Auditors have not been successful in measuring the components of the audit risk model. How is
it possible to use the model in a meaningful way without a precise way of measuring the risk?

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Analytical procedures are an important part of the audit process and consist of the evaluation of
financial information by the study of plausible relationships among financial and nonfinancial
data. Analytical procedures may be done during planning, as a substantive test, or as a part of the
overall review of an audit.

When performing an integrated audit of a public company, what are the auditors responsibilities
related to internal control as required by PCAOB standards?

What two aspects of internal control must management assess when reporting on internal control
to comply with Section 404 of the Sarbanes-Oxley Act?

List the types of specific control activities and provide one specific illustration of a control in the
sales area for each control activity.

Explain what is meant by the term acceptable audit risk. What is its relevance to evidence
accumulation?

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In the audit of the Worldwide Wholesale Company, you did extensive ratio and trend analysis.
No material exceptions were discovered except for the following: 1. Commission expense as a
percent of sales has stayed constant for several years but has increased significantly in the
current year. Commission rates have not c

Management must identify the framework used to evaluate the effectiveness of internal control
over financial reporting. What framework is used by most U.S. public companies?

The following internal controls were tested in prior audits. Evaluate each internal control
independently and determine which controls must be tested in the current year's audit of the
December 31, 2011 financial statements. Be sure to explain why testing is or is not required in
the current year. 1. The general led

Anthony, CPA, prepared the flowchart (p. 330) which portrays the raw materials purchasing
function of one of Anthony's clients, Medium-Sized Manufacturing Company, from the
preparation of initial documents through the vouching of invoices for payment in accounts
payable. Assume that all documents are prenumbered. Requ

Explain why materiality is important but difficult to apply in practice.

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Explain the causes of an increased or decreased planned detection risk.

Define fraudulent financial reporting and give two examples that illustrate fraudulent financial
reporting.

What is the relationship among the five components of internal control?

Solomon is a highly successful, closely held Boston, Massachusetts, company that manufactures
and assembles automobile specialty parts that are sold in auto parts stores in the East. Sales and
profits have expanded rapidly in the past few years, and the prospects for future years are every
bit as encouraging. In fact,

What two aspects of internal control must the auditor assess when performing procedures to
obtain an understanding of internal control?

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Your comparison of the gross margin percent for Jones Drugs for the years 2008 through 2011
indicates a significant decline. This is shown by the following information: A discussion with
Marilyn Adams, the controller, brings to light two possible explanations. She informs you that
the industry gross profit percent i

Establishing materiality and allocation of materiality to individual accounts requires considerable


judgment. Access Microsoft’s 2009 financial statements at www.microsoft.com (use the
“investor relations” link). Required a. Assume that your firm’s materiality guidelines
indicate that materiality should be bet

Define misappropriation of assets and give two examples of misappropriation of assets.

Section 404(a) of the Sarbanes-Oxley Act requires management to issue a report on internal
control over financial reporting. Identify the specific Section 404(a) reporting requirements for
management.

Define what is meant by inherent risk. Identify four factors that make for high inherent risk in
audits.

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What is meant by planned detection risk? What is the effect on the amount of evidence the
auditor must accumulate when planned detection risk is increased from medium to high?

Frank James, a highly competent employee of Brinkwater Sales Corporation, had been
responsible for accounting-related matters for two decades. His devotion to the firm and his
duties had always been exceptional, and over the years, he had been given increased
responsibility. Both the president of Brinkwater and the par

Multiple Choice Questions The following questions deal with materiality. Choose the best
response. a. Which one of the following statements is correct concerning the concept of
materiality? (1) Materiality is determined by reference to guidelines established by the AICPA.
(2) Materiality depends only on the dollar amo

What are the three conditions of fraud often referred to as "the fraud triangle?"

Using the audit risk model, state the effect on control risk, inherent risk, acceptable audit risk,
and planned evidence for each of the following independent events. In each of the events a to j,
circle one letter for each of the three independent variables and planned evidence: I = increase, D
= decrease, N = no effe

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As part of the analytical procedures of Mahogany Products, Inc., you perform calculations of the
following ratios: For each of the preceding ratios: Required a. State whether there is a need to
investigate the results further and, if so, the reason for further investigation. b. State the approach
you would use in t

Pamela Albright is the manager of the audit of Stanton Enterprises, a public company that
manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2011
audit and is considering an appropriate amount for planning materiality, what tolerable
misstatement should be allocated to the financi
What are the five components of internal control in the COSO internal control framework?

Describe the four phases performed by the auditor when obtaining an understanding of internal
control and assessing control risk.

Multiple Choice Questions The following questions deal with deficiencies in internal control.
Choose the best response. a. Which of the following is an example of an operation deficiency in
internal control? (1) The company does not have a code of conduct for employees to consider.
(2) The cashier has online ability to

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The following are concepts discussed in this chapter: 1. Preliminary judgment about materiality
2. Control risk 3. Risk of fraud 4. Estimated total misstatement in a segment 5. Planned detection
risk 6. Estimate of the combined misstatement 7. Acceptable audit risk 8. Tolerable misstatement
9. Inherent risk 10. Risk of

On pages 279-280 are statements of earnings and financial position for Wexler Industries.
Required a. Use professional judgment in deciding on the preliminary judgment about
materiality for earnings, current assets, current liabilities, and total assets. Your conclusions
should be stated in terms of percents and dol

Chapter 8 introduced the eight parts of the planning phase of audits. Which part is understanding
internal control and assessing control risk? What parts precede and follow that understanding and
assessing control risk?

Distinguish between the terms tolerable misstatement and preliminary judgment about
materiality. How are they related to each other?

Give examples of risk factors for misappropriation of assets for each of the three fraud
conditions: incentives/pressures, opportunities, and attitudes/rationalization.

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Assume that Rosanne Madden, CPA, is using 5% of net income before taxes, current assets, or
current liabilities as her major guidelines for evaluating materiality. What qualitative factors
should she also consider in deciding whether misstatements may be material?

Following are the auditor's calculations of several key ratios for Cragston Star Products. The
primary purpose of this information is to understand the client's business and assess the risk of
financial failure, but any other relevant conclusions are also desirable. a. What major
conclusions can be drawn from this i
Define the meaning of the term materiality as it is used in accounting and auditing. What is the
relationship between materiality and the phrase obtain reasonable assurance used in the auditor's
report?

The following are independent situations for which you will recommend an appropriate audit
report on internal control over financial reporting as required by PCAOB auditing standards: 1.
The auditor identified a material misstatement in the financial statements that was not detected
by management of the company. 2. The

State the three categories of factors that affect acceptable audit risk and list the factors that the
auditor can use to indicate the degree to which each category exists.

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The Internet has dramatically increased global e-commerce activities. Both traditional "brick and
mortar" businesses and new dot-com businesses use the Internet to meet business objectives. For
example, eBay successfully offers online auctions as well as goods for sale in a fixed price
format. Required a. Identify bus

The purpose of Part I is to perform preliminary analytical procedures as part of the audit
planning process. You have been asked to focus your attention on two purposes of analytical
procedures: obtain an understanding about the client's business and indicate where there is an
increased likelihood of misstatements.a. R

Distinguish a significant deficiency in internal control from a material weakness in internal


control. How will the presence of one significant deficiency affect an auditor's report on internal
control under PCAOB standards? How will the presence of one material weakness affect an
auditor's report on internal control u

Multiple Choice Questions The following questions concern audit risk. Choose the best response.
a. Some account balances, such as those for pensions and leases, are the result of complex
calculations. The susceptibility to material misstatements in these types of accounts is defined as
(1) Audit risk. (2) Detection ri

For each of the following, give an example of a physical control the client can use to protect the
asset or record: 1. Petty cash 2. Cash received by retail clerks 3. Accounts receivable records 4.
Raw material inventory 5. Perishable tools 6. Manufacturing equipment 7. Marketable securities

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In Part I of the case, you performed preliminary analytical procedures for Pinnacle. The purpose
of Part II is to identify factors influencing risks and the relationship of risks to audit evidence.
During the planning phase of the audit, you met with Pinnacle's management team and
performed other planning activities. Y
State the six transaction-related audit objectives.

Define the audit risk model and explain each term in the model. Also describe which two factors
of the model when combined reflect the risk of material misstatement.

How will the conduct of an audit of a medium-sized company be affected by the company's
being a small part of a large conglomerate as compared with it being a separate entity?

Explain the effect of extensive misstatements found in the prior year's audit on inherent risk,
planned detection risk, and planned audit evidence.

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Distinguish fraudulent financial reporting from misappropriation of assets.

Following are six situations that involve the audit risk model as it is used for planning audit
evidence requirements. Numbers are used only to help you understand the relationships among
factors in the risk model. Required a. Explain what each of the four risks means. b. Calculate
planned detection risk for each si

Multiple Choice Questions The following questions deal with audit risk and evidence. Choose
the best response. a. As the acceptable level of detection risk decreases, an auditor may (1)
Reduce substantive testing by relying on the assessments of inherent risk and control risk. (2)
Postpone the planned timing of substa

Describe why auditors generally evaluate entity-level controls before evaluating transaction-level
controls.

Explain why inherent risk is set for segments rather than for the overall audit. What is the effect
on the amount of evidence the auditor must accumulate when inherent risk is increased from
medium to high for a segment?

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Explain the relationship between acceptable audit risk and the legal liability of auditors.

1. How is this film clip an example of strategic planning? 2. This chapter discusses situational
analysis and defines a SWOT analysis as “a search for strengths, weaknesses, opportunities,
and threats that affect organizational performance.” Did Ray and the others do such an
analysis? If not, what was missing from

Would you do anything different if you were the city administrator? If yes, explain what and
why. If no, explain why not.

Why is there so much emphasis on group dynamics and teamwork in the workplace?
What are their strategies to recruit the best talent and keep them coming back to teach year after
year?

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What is meant by setting a preliminary judgment about materiality? Identify the most important
factors affecting the preliminary judgment.

Are unfavourable natural weather patterns more dangerous for major retailers like Rona or small
businesses? Provide at least one argument on each side before making a choice.

What are the keys to success for Flight 001 in implementing their strategic plan (flight plan)?

When would a face to face group meeting be a more effective medium for communicating with
employees?

How is feedback and communication used to improve team performance?

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Why do most people resist change?

1. Identify the various environmental factors which influence Air Canada. Which of these are
most important? Explain. 2. How does the multi-year planning timeframe regarding the
purchasing of aircraft impact management decisions? 3. How do unpredictable events impact Air
Canada? Give examples. 4. What can Air Canad

On various occasions, government provides financial incentives to business firms. For example,
the Canadian government provided expert assistance to Bombardier Inc. with its Technology
Transfer Program. Is this consistent with a basically free market system? Explain how this might
distort the system.

1. This chapter emphasized a strategic approach to human resource management. Detective Brice
outlines a strategy in the opening of these scenes for the job he describes to Riley. What are the
key parts of that strategy? What are the human resource implications of the strategy? 2.
Riley’s next step is to recruit Ray

How did the crew development manager, Emily Griffin, learn to plan? What lessons can you
learn from her approach to help you be a more efficient and effective manager and planner?

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It has been argued that inflation is both good and bad. How can this be? Explain. Are
government efforts to control inflation well advised? Explain?
Select a technology product, such as Amazon’s Kindle e-reader, and research how the
various environments of business (economic, technological, socio-cultural, global, political-
legal, and general business) are currently impacting the sales possibilities of the product or
service.

How does the values, attitudes and actions of the Flight 001 owners’ impact employee
behavior?

1. After considering the arguments in support of peak oil theory and the arguments against it,
draw a graph (with oil production on the vertical axis and time on the horizontal axis) which
shows your predictions of world oil production from now until the year 2100. Defend your
predictions. 2. It appears that the suppl

As a manager, what lessons can you learn from this video about preparing a contingency plan to
manage communication following a crisis?

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What do you think is the best approach to team formation?

Pick a specific product that you use. Explain how the factors of production work together to
make that product available.

Describe the impact partnerships have on synergy and a sustainable supply chain.

In recent years, many countries have moved from planned economies to market economies. Why
do you think this has occurred? Can you envision a situation that would cause a resurgence of
planned economies?

When and why should a company conduct a SWOT analysis?

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What is emotional intelligence and why is it important for leaders?

What is meant by the concept, “strategic thinking”?

What is the next stage of growth for the creative team at evo?

How was he successful in getting the owner to agree to sell Natural Gas Powered Vehicles?

Although the executives at Preserve® are doing many things right in controlling their product
development, there is room for improvement. How would you suggest they enhance their total
quality management process to be prepared for future growth?

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What company values and elements of corporate culture impact evo’s approach to teamwork
and team formation?

What can other business owners and managers learn from Roger Scholfield about embracing
change for competitive advantage?

While text messaging proved to be very useful following the tornado, do you think it is an
appropriate tool for business communication? Explain.

Scholfield Honda has a vision for ongoing change that includes increasing the sales of Natural
Gas Powered Vehicles. They face a few challenges that are beyond their direct control. What do
you suggest they do to develop a win-win approach and negotiate for the infrastructure
improvements necessary?

1. Which influence tactic or tactics does Daphne try to use to persuade Millie to go out with
Jason, the man Daphne has chosen for her? 2. Of the five types of power described in the
chapter, which type or types of power does Daphne have over Millie? Explain your answer. 3.
Review the discussion of emotional intellig

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1. What can you infer about this organization and its structure based on the conversation you
witness in this video clip? 2. Would you describe this as a mechanistic or organic organization?
Explain your answer. 3. Does the scene show line authority or staff authority? Give some
examples from the scene.

1. Which of the four types of organizational change best describes Ray and Annie’s decision
to build a baseball field on their farm? Explain your answer. 2. In this scene, who are the agents
of change, and how does change happen? Provide details from the scene to support your answer.
3. Mark is clearly confused and

What do you think of the measures that are being proposed under the SOPA legislation?

What will it take for Flight 001 to achieve their goals for growth, expansion, and recognition as
the travel authority throughout the World?

What are potential risks and rewards of using partners as part of the Preserve® brand’s
overall strategy?

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In your own words, state the pros and cons of paying whistle-blowers for the information they
provide.
What are the benefits and risks of outsourcing? What, if anything, should be done about the
problem of Canadian companies outsourcing jobs to foreign countries?

Why is it important for managers to understand the environment in which their businesses
operate?

1. Does “The Bird Problem” present Kit and Ace with a programmed or nonprogrammed
decision? What features of their decision problem led to your choice? 2. Assess the degree of
certainty or uncertainty that Kit and Ace face in this decision problem. What factors set the
degree of certainty or uncertainty? 3. Revie

How does Numi Tea develop group cohesion to achieve their organizational goals?

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1. In what ways does this scene provide an example of the communication process? Draw
examples from his speech to support your conclusions. 2. Which of the five types of
communication strategies does the coach use in this scene? Explain your answer. 3. What details
from this video clip lead you to believe that Coach

How do they insure consistencies and quality from one week to the next with new instructors
coming in all the time?

1. What type or types of control did you witness in this scene? Give examples from the video
clip. 2. Typically on a first date, the partner who planned and organized the date (in this case,
Rob) wants to impress and please the other partner, but Rob sees that that’s not happening in
the early part of this scene. Ho

Which of the external environments have had the most effect on Glenora Distilleries?

1. Which of the roles is government playing when it gives bailout money to businesses? 2. Do
you think that providing bailouts to businesses that are in trouble violates certain fundamental
principles on which the Canadian economy is based? Explain your reasoning. 3. Supporters of
bailouts argue that in crisis situat

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What is the difference between a leader and a manager?

What did city leaders do to gain buy-in and support for their decision to go green in the
rebuilding process?

What factors may complicate the decision making process?

What are the pros and cons of having government actively involved in subsidizing the
development of green products?
Why do you think Canada lags behind other industrialized countries in R&D?

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What did you learn from Dannielle Oviedo, the Distribution Center Manager, about leading
teams?

Compare and contrast the decision from the perspective of current and former residents
evaluating the positive and negatives presented.

In this chapter you learned about motivation through employee participation. Provide a few
examples of how Flight 001 demonstrates a participative management approach?

What is a contingent workforce?

Why are misleading green claims made for so many products?

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What industries are more likely to hire contingent workers?

Why is Steve Hewitt’s leadership style well-suited to the rebuilding effort?

1. Based on your own observations in the marketplace, do you believe we are in an inflationary
or deflationary period? 2. Go to the Bank of Canada website and find the latest inflation figures.
Based on the latest statistics, is inflation or deflation the biggest problem today? 3. What do you
think of Phil Green’s

Motivation is often a challenge in retail stores. What has Flight 001 done to ensure a happy and
motivated workforce?

At first glance, it might seem as though the goals of economic growth and stability are
inconsistent with one another. How can you reconcile this apparent inconsistency?

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Assume that you are the owner of an internet pharmacy that sells prescription drugs to U.S.
citizens. Analyze the factors in the external environment (economic, technological, political-
legal, and socio-cultural) that might facilitate your company’s activities. Analyze the factors
in the external environment that mig

1. Based on your understanding of a group as described in this chapter, do Roscoe Jenkins and
his brother Sheriff Otis Jenkins form a group in this film sequence? If so, what type of group are
they? 2. In your opinion, what does the conversation reveal about each man’s perception of
his own role in this organization
1. Does this scene show strategic, intermediate, or operational planning? 2. How would you
describe this situation in terms of the project life cycle? 3. What types of uncertainty are these
characters experiencing?

What are the major control issues facing the Preserve® brand today as they expand their
product line?

What are the pros and cons of each of these technologies when used for the purpose of business
communication?

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1. The chapter states that managers try to motivate people by “administering rewards fairly,
building trust and teamwork, and creating a stimulating work environment.” Which of these
motivators is Coach Gaines using in this scene? Give examples from the scene to support your
answer. 2. Which of Maslow’s needs di

What are some of the keys to success for managers faced with a difficult decision that impacts
their entire team?

Is it possible for a manager to spend too much time trying to anticipate future events? Why or
why not?

Explain the process and approach the executives for Preserve® follow to determine who they
will partner with?

How is feedback and communication used to improve team performance?

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In comparison, what are the pros and cons to face to face group communication?

What is the current climate regarding the regulation of business? How might it affect you if you
were a manager today?

Most people find it easy to think of negative outcomes that occur because of high prices. Can
you think of situations where high prices can lead to positive outcomes? Explain.

Describe your impression of quality from a management perspective?

Is one factor of production more important than the others? If so, which one? Why?

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Which of the three types of control discussed at the beginning of this chapter are evident with
Preserve®?
What challenges does Main Media Workshops face in hiring contingent faculty instructors?

For a product that is not discussed in Chapter 1, find an example where a surplus of a product led
to decreased prices. Then find an example where a shortage led to increased prices. What
eventually happened in each case? Why? Is what happened consistent with what economics
predicts?

How could Rona better prepare and handle negative weather patterns?

Describe Hewitt’s approach to empowerment and explain why he was successful in


empowering his employees.

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What does a product focused company seek to control with their total quality management
initiatives?

Review the section on new product development in Chapter 16. At what stage of the new product
development process is the hydrogen fuel cell?

Consider the following statement: “The high prices of commodities like rare earth metals and
palladium are not really a concern because we do not need metals to survive. But, the high price
of food is a concern because it threatens people’s lives. The central governments of the world
should therefore coordinate the

Several of the Numi Tea employees in this video mentioned passion as one of the essential
characteristics for success. How would you describe passion in the workplace?

Is it always in a company’s best interest to feature the lowest prices?

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What do you think of Facebook’s new revenue stream model? Will it work?

Provide a few individual examples – who revealed what aspects of emotional intelligence?

Eventually, what form of competition is likely to characterize the market for internet service?

Trust has often been considered an essential ingredient for high functioning teams. As a team
leader how can you build trust with your team members?

Familiarize yourself with a product or service that is sold under conditions of perfect
competition. Explain why it is an example of perfect competition and identify the factors that
make it so. Then do the same for a product in each of the other three competitive situations
described in the chapter (monopolistic compe
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What are the most effective recruiting methods to attract top talent for an organization?

Explain how current economic indicators such as inflation and unemployment affect you
personally. Explain how they will affect you as a manager.

Government plays a variety of roles in the Canadian mixed economy. Consider each of the roles
discussed in the text and state the criteria you would use to decide whether government
involvement in each role is excessive, insufficient, or about right.

Why is managing change an important topic to include in a Management textbook?

What would you do differently to recruit and train contingent faculty for Main Media
Workshops?

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Critique the town of Greensburg’s approach to the 100 year decision.

How has their commitment to quality and control given them a competitive edge in forming
partnerships with customers and manufacturers?

What is your group’s most important recommendation? Why do you think it is likely to
succeed?

As a manager, under what sort of circumstances might you apply each of the theories of
employee motivation discussed in this chapter? Which would be easiest to use? Which would be
hardest? Why?

1. Why would a company decide split up into two (or more) companies? 2. In your own words,
explain the dilemma that managers face when they are trying to decide between product and
geographic departmentalization. 3. How does the notion of managerial accountability enter into
the “product vs. geographic departmenta

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Select any group of which you are a member (your company, your family, or a club or
organization, for example). Explain how planning, organizing, directing, and controlling are
practised in the group.

1. There seem to be many advantages to behaviour-based interviewing. Are there disadvantages


as well? Explain. 2. Why is behaviour-based interviewing becoming so common? 3. Consider the
following statement: Behaviour-based interviewing sounds like a good idea because it forces
interviewees to describe their actual be
Do you think that a firm that is operating internationally is better advised to adopt a single
standard of ethical conduct, or adapt to local conditions? Under what kind of conditions might
each approach be preferable?

Why is a good employee-job match important? Who benefits more, the organization or the
employees? Explain.

1. What is corporate culture? Compare and contrast the companies described in this case in terms
of their corporate cultures. 2. Can the CEO of a company really influence the culture of an
organization in a substantial way? 3. Consider the following statement: The idea that a culture
clash is important is overstated.

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Why did it take so many years for the union movement to mature in Canada?

When Lang deals with Italian manufacturers, she is a young, attractive woman in a man’s
world. Often, she must convince men that her purpose is business and nothing else. How should
Lang handle personal invitations that get in the way of business? How can she say no while still
maintaining business relationships? Why

With your instructor playing the role of management and a student playing the role of a union
organizer, role play the processes involved in trying to form a union.

The proportion of the Canadian workforce that is unionized has been constant for many years.
Why hasn't the proportion increased or decreased?

If a company has a formal organizational structure, why should managers pay attention to the
informal organization?

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Consider the following statement: Canadian legislation is hurting the right to freedom of speech
of its citizens with these types of rulings. Do you agree with the statement? Defend your answer.

What impact will intense global competition and low wage rates in some foreign countries have
on the future viability of unions in Canada?

The argument has been made that, compared to the functional structure, the divisional structure
does a better job of training managers for top-level positions. Do you agree or disagree with this
argument? Explain your reasoning.

Aside from carelessness, what factors might lead a cruise line to illegally dump waste into the
ocean? What factors might cause cargo ships to use low-grade fuel?
With the average computer programmer earning nearly $70,000, and with all competitive firms
paying top dollar, why might organizational issues be critical in determining employee loyalty?

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1. How is running a family business different from creating a business from scratch? What are
the advantages? What are the disadvantages? 2. It seems as though the Antinori family has found
a way to ensure that the entrepreneurial sprit is transferred from generation to generation in a
positive manner. But this contra

Should recruiters be legally permitted to conduct background checks on candidates based on


publicly available information on social media sites? Does this prospect worry you?

Do you think that operating a virtual storefront will be harder or easier than doing business in
your local community? Explain your answer.

How do you think the power content of speech affects a manager’s ability to communicate?
Evaluate some of the ways in which effects may differ among supervisors, peers, and
subordinates.

How is it possible for unemployment to be high while at the same time companies are
complaining that they are having trouble hiring people?

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Explain the significance of size as it relates to organizational structure. Describe the changes that
are likely to occur as an organization grows.

What is the relationship between performance behaviours and organizational citizenship


behaviours? Which are more important to an organization?

How are the four functions of management related to the five skills of management? Use
examples to clarify your answer.

What are the four main areas of social responsibility? How has AEM Healthy Food addressed
these areas?

Do you think Lang’s relocation to Italy will pay off? Why or why not?

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Discuss the concepts of production value, transformation and operations planning as they apply
now, or may in the future, to the production of Gulak’s Uno. Could any of these factors be
reasons why the Dragons backed out of the deal?
Make a list of all the major items in your bedroom. Identify the country in which each item was
made. Give possible reasons why that nation might have a comparative advantage in producing
this good.

What corporate-level strategy is Bombardier pursuing? Explain your reasoning.

Have you ever used a social media or online recruiting site to find a job? In your opinion, how
effective are these tools?

The decision to “go international” requires a high degree of analysis and examination of
factors both internal and external to the business. Assess MWMC’s form of competitive
advantage and level of involvement in international education.

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What are the advantages of working for an environmentally-friendly company? Are there any
disadvantages? Explain.

What is social responsibility? To what extent can educational institutions foster social
responsibility?

Why do you think the Netflix motivation scheme is not for everyone?

1. What characteristics did Salvatore Parasuco possess that made him successful as an
entrepreneur? 2. The visibility of Parasuco jeans is higher in other countries than in Canada.
Why might this be so? 3. How did Salvatore Parasuco’s background facilitate his success?

How can participative management programs enhance employee satisfaction and motivation?
Why do some employees not want to get involved in participative management?

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The EU includes most of the Western European countries, but some (such as Switzerland) have
chosen not to join. Why might that be? What are the implications for countries that do not join?

What are some of the problems that are encountered when we try to define the term “small
business”?

Discuss the factors of production as they apply to Tawse Winery.

What are the most promising steps that Lang can take to grow her business? What are the least
promising?

What are the advantages associated with setting green goals? Are there disadvantages? Explain.

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Interview the manager of a local service business—a fast food restaurant. What types of tasks
does this manager typically delegate? Is the appropriate authority also delegated in each case?
What problems occur when authority is not delegated appropriately?

Consider the following statement: Trying to motivate employees by focusing on their needs is
not a good idea because it is hard to find out just what employee needs are, and even if you find
out, that doesn’t tell a manager specifically what to do to satisfy the needs. Do you agree or
disagree with the statement? Def

Which print media source (newspapers, magazines, or books) is more likely to benefit from the
widespread adoption of e-readers? Why?

1. Can the same business model that has been so successful in Canada work in the U.S.? 2. Tim
Hortons has focused on hockey and Canadian symbols in Canada. What might replace hockey as
an emphasis in the U.S. market? 3. How will Tim Hortons compete with the myriad of small
local coffee shops in the U.S.? 4. Tim Hort

1. Consider the following statement: The use of social media by employees is harmful to
productivity because employees are distracted from their work and spend time on personal
matters instead. Do you agree or disagree with the statement? Support your position. 2. Why do
some workers refuse to share their job knowledg

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What are some potential barriers to this initiative?

Consider the following statement: The federal government of Canada should not intervene when
foreign companies attempt to buy out Canadian companies. This type of action by government
interferes with normal free enterprise activity and leads to various problems, including
inefficiencies in the way companies are run. Do

What are the various factors that make a solution to the ocean pollution problem so difficult?

Assume that you are the manager of a small firm seeking to enter the international arena. What
information would you need about the market that you are thinking of entering?

In our age of computers and e-mail, why do you think that personal presentation continues to be
important in management?

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What difficulties might Rona encounter as it tries to reach the goal of having 25 percent of its
total wood sales come from forests that are certified by the Forest Stewardship Council?
1. Explain in your own words how the interdependent, global economy of the 21st century has
caused major problems for unionized Canadian automobile manufacturers. Do non-union
automobile manufacturers have the same problem? 2. What are the pros and cons of union
members having an equity stake in the company they work

What steps would you take to improve the attitude and productivity of long-time employees who
resist change?

Identify some specific ethical or social responsibility issues that might be faced by small-
business managers and employees in each of the following areas: environment, customers,
employees, and investors.

Lang thinks that her trouble breaking into the U.S. retail market stems from the fact that her
company is unknown. How would this circumstance affect the strategies suggested in Steps 1
and 2?

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What differences in corporate culture might you expect to find between a 100-year old Winnipeg
manufacturing firm and a five-year old ecommerce firm in Ottawa?

Suppose that you are a manager in a non-unionized company. You have just heard a rumour that
some of your workers are discussing forming a union. What would you do? Be specific.

What are the various levels of strategy that exist in a business firm?

Compare and contrast the needs-based theories of Maslow and Herzberg with expectancy theory
and equity theory.

What is the relationship between Mintzberg’s roles of management and the more traditional
functions of management? Use examples to clarify your answer.

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In what kind of organization would the technical skills of top managers be more important than
human relations or conceptual skills? Are there organizations where conceptual skills are not
important?

Explain how it is possible for a country to have a positive balance of trade and a negative balance
of payments.

What corporate-level strategy has Irving used over the years?

1. Summarize in your own words the major factors that can inhibit the progress toward greener
practices on the part of businesses and consumers. 2. Electric cars create far less pollution than
cars powered by the internal combustion engine. In spite of their environmentally-friendly
nature, it may be quite a few years

Consider the following statement: A company can’t really emphasize standardization and
decentralization at the same time because these terms are contradictory. Do you agree with the
statement? Defend your answer.

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Consult the sources listed for this boxed insert (found at the end of the book), and then develop a
list of the advantages and disadvantages of each type of energy. Based on the list, which source
of energy do you think is best? What problems did you encounter as you tried to make your
decision about which form is best

1. What are the key differences between the functional and divisional organizational structures?
Which type is Kodak using? 2. What corporate-level strategy did Kodak pursue in the 20th
century? What are the advantages and disadvantages of such a strategy? What corporate-level
strategy is Kodak pursuing in the 21st ce

Why might a corporation choose to remain private? Why might it choose to “go public”?

How does Tawse’s decision to craft wines using a traditional technique affect its product?
When discussing your answer, consider the competitive wine industry as a whole.

What are the advantages of “green” buildings? Are there any disadvantages? Explain.

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What are the implications for management of a closed shop, a union shop, and an agency shop?

What are the four basic organizational structures? Which one is evident at Irving?

Why are new ventures the main source of job creation and new product/service ideas?

Consider the following statement: It is very expensive to build eco-friendly buildings, so


expenditures like these should generally not be made. Rather, companies should focus on
upgrading their production facilities so they can make higher quality, lower-priced products for
consumers and more profits for their shareho

Why do you think more computer-related jobs than non-technical jobs are posted online? Do you
think this situation will change?

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If you were your company’s director of human resources, how would you make your code of
ethics a “living document?”
What is the union’s role when layoffs occur?

Are you in favour of promoted tweets? Debate Twitter’s decision to implement this model.

Are the union members you spoke with satisfied or dissatisfied with their union’s efforts to
achieve better working conditions, higher wages, and improved benefits?

1. How does Bombardier’s development of the C Series aircraft highlight the challenges and
opportunities of globalization? 2. What role will government play in the success and failure of
the C Series aircraft? Identify the role of subsidies and debate the concept of free trade and
protectionism as it relates to this

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Consider the various corporate-level strategies discussed in the text (concentration, growth,
integration, diversification, investment reduction). What is the relationship between these various
strategies? Are they mutually exclusive? Are they complementary? Defend your answer.

Interview a manager and ask whether the manager believes that leadership can be taught. What
are the implications of the manager’s answer?

Interview a manager and ask about the informal organization in his or her place of business.
What advantages and disadvantages does the manger see with respect to the informal
organization? What is the manager’s strategy in dealing with the informal organization?

In your own words, explain the advantages and disadvantages of DB and DC pension plans.

Why do some managers have difficulties in delegating authority? Why do you think this problem
may be more pronounced in small businesses?

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Do you think your business would be successful on the Internet? Why or why not?

Consider the following statement: “All this publicity about graduates looking for jobs at
environmentally-friendly companies is overblown. Graduates want to look like they are
marketable in a tough job market, and since being green is the thing to do, many graduates are
saying they want to work for environmentally-fr

Workers at the Canadian plants of Ford, General Motors, and Chrysler are represented by the
Canadian Auto Workers. Why are automobile workers at Toyota and Honda—who are doing
exactly the same kind of work—not unionized?

What is the difference between a merger and an acquisition? A hostile takeover and a friendly
takeover? A strategic alliance and a merger? How do these terms apply in the potash case?
Explain the difference between a “vision” and a “mission.”

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Based on your analysis, how will Internet expansion affect your current business practices? What
specific changes are you likely to make?

Why is formal training of workers so important to most employers? Why don’t employers
simply let people learn about their jobs as they perform them?

Compare and contrast the matrix and divisional approaches to organizational structure. How
would you feel personally about working in a matrix organization in which you were assigned
simultaneously to multiple units and had multiple bosses?

Explain how each of the “big five” personality traits influence leadership effectiveness.

Is Planet Bean Coffee’s use of the terms “vision” and “mission” consistent with
the way the terms are used in this textbook? Explain.

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Consider the following statement: Given low investment returns and increased life expectancy, a
defined contribution plan is really the only type of pension that is financially feasible for
companies. Do you agree or disagree with the statement. Defend your reasoning.

Describe a hypothetical organizational structure for a small printing firm. Describe changes that
might be necessary as the business grows.

Data for Barry Computer Co. and its industry averages follow. a. Calculate the indicated ratios
for Barry. b. Construct the DuPont equation for both Barry and the industry. c. Outline
Barry’s strengths and weaknesses as revealed by your analysis. d. Suppose Barry had
doubled its sales as well as its inventories, acco

A firm has a profit margin of 3% and an equity multiplier of 1.9. Its sales are $150 million, and it
has total assets of $60 million. What is its ROE?

Allison and Leslie, who are twins, just received $10,000 each for their 25th birthday. They both
have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her
“early retirement fund” on her birthday, beginning a year from today.Allison opened an
account with the Safety First Bond F

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It is now December 31, 2015 (t = 0) , and a jury just found in favor of a woman who sued the
city for injuries sustained in a January 2014 accident. She requested recovery of lost wages plus
$300,000 for pain and suffering plus $60,000 for legal expenses. Her doctor testified that she has
been unable to work since the

Assume that yields on U.S. Treasury securities were as followsTerm         Â


       Rate 6 months.....................4.69% 1 year.............................5.49 2
years...........................5.66 3 years...........................5.71 4 years..........................5.89 5 years...

Arlington Corporation’s financial statements (dollars and shares are in millions) are provided
here.a. What was net operating working capital for 2015 and 2016? b. What was Arlington’s
2016 free cash flow? c. Construct Arlington’s 2016 statement of stockholders’ equity. d.
What was Arlington’s 2016 EVA? Assum

You want to buy a house within 3 years, and you are currently saving for the down payment.
You plan to save $9,000 at the end of the first year, and you anticipate that your annual savings
will increase by 5% annually thereafter. Your expected annual return is 8%. How much will you
have for a down payment at the end of

What are the various forms of business organization? What are the advantages and disadvantages
of each?

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Broward Manufacturing recently reported the following information:Net


income.....................................$615,000 ROA..........................................................10% Interest
expense............................$202,950 Accounts payable and accruals...$950,000Broward’s tax
rate is 30%. Broward fin

a. You plan to make five deposits of $1,000 each, one every 6 months, with the first payment
being made in 6 months. You will then make no more deposits. If the bank pays 6% nominal
interest, compounded semiannually, how much will be in your account after 3 years? b. One year
from today you must make a payment of $4,00

Edmonds Industries is forecasting the following income


statement:Sales ....................................................................................................$10,000,000
Operating costs excluding depreciation & amortization ..................5,500,000
EBITDA ................................................

A firm has been experiencing low profitability in recent years. Perform an analysis of the
firm’s financial position using the DuPont equation. The firm has no lease payments but has
a $2 million sinking fund payment on its debt. The most recent industry average ratios and the
firm’s financial statements are as fol

Is the following equation correct for finding the value of a constant growth stock? Explain.

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Investors require an 8% rate of return on Mather Company’s stock (i.e., rs = 8%). a. What is
its value if the previous dividend was D0 = $1.25 and investors expect dividends to grow at a
constant annual rate of (1) –2%, (2) 0%, (3) 3%, or (4) 5%? b. Using data from part a, what
would the Gordon (constant growth) mo

A father is now planning a savings program to put his daughter through college. She is 13, plans
to enroll at the university in 5 years, and should graduate 4 years later. Currently, the annual cost
(for everything—food, clothing, tuition, books, transportation, and so forth) is $12,000, but
these costs are expected

Assume that it is now January 1, 2017. Wayne-Martin Electric Inc. (WME) has developed a solar
panel capable of generating 200% more electricity than any other solar panel currently on the
market. As a result, WME is expected to experience a 15% annual growth rate for the next 5
years. Other firms will have developed co

Byron Books Inc. recently reported $13 million of net income. Its EBIT was $20.8 million, and
its tax rate was 35%. What was its interest expense?

Hampton Industries had $39,000 in cash at year-end 2015 and $11,000 in cash at year-end 2016.
The firm invested in property, plant, and equipment totaling $210,000. Cash flow from financing
activities totaled $120,000. a. What was the cash flow from operating activities? b. If accruals
increased by $15,000, receivables

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Earley Corporation issued perpetual preferred stock with an 8% annual dividend. The stock
currently yields 7%, and its par value is $100. a. What is the stock’s value? b. Suppose
interest rates rise and pull the preferred stock’s yield up to 9%. What is its new market
value?

Computech Corporation is expanding rapidly and currently needs to retain all of its earnings;
hence, it does not pay dividends. However, investors expect Computech to begin paying
dividends, beginning with a dividend of $0.50 coming 3 years from today. The dividend should
grow rapidly—at a rate of 35% per year—duri

Maxwell Mining Company’s ore reserves are being depleted, so its sales are falling. Also,
because its pit is getting deeper each year, its costs are rising. As a result, the company’s
earnings and dividends are declining at the constant rate of 6% per year. If D0 = $3 and rs =
10%, what is the value of Maxwell Mini

Henderson’s Hardware has an ROA of 11%, a 6% profit margin, and an ROE of 23%. What
is its total assets turnover? What is its equity multiplier?
Starting next year, you will need $5,000 annually for 4 years to complete your education. (One
year from today you will withdraw the first $5,000.) Your uncle deposits an amount today in a
bank paying 6% annual interest, which will provide the needed $5,000 payments. a. How large
must the deposit be? b. How much will b

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Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following
free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant
5% rate. Dantzler’s WACC is 11%.a. What is Dantzler’s horizon, or continuing, value?
(Hint: Find the value of all free

A mutual fund manager has a $20 million portfolio with a beta of 1.7. The risk-free rate is 4.5%,
and the market risk premium is 7%. The manager expects to receive an additional $5 million,
which she plans to invest in a number of stocks. After investing the additional funds, she wants
the fund’s required return to b

Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF
is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt or
preferred stock, and its WACC is 10%. If Scampini has 40 million shares of stock outstanding,
what is the stock’s value per share?

You have been managing a $5 million portfolio that has a beta of 1.15 and a required rate of
return of 11.475%. The current risk-free rate is 4%. Assume that you receive another $500,000.
If you invest the money in a stock with a beta of 0.85, what will be the required return on your
$5.5 million portfolio?

Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a
dividend of $2.75 at the end of each year. What is the required rate of return?

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A stock is expected to pay a dividend of $2.75 at the end of the year (i.e., D1 = 2 75), and it
should continue to grow at a constant rate of 5% a year. If its required return is 15%, what is the
stock’s expected price 4 years from today?

Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he
retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at
the time he retires as $50,000 has today. (The real value of his retirement income will decline
annually after he retires.)

Six years from today you need $10,000. You plan to deposit $1,500 annually, with the first
payment to bemade a year from today, in an account that pays a 5% effective annual rate. Your
last deposit, which will occur at the end of Year 6, will be for less than $1,500 if less is needed to
reach $10,000. How large will yo

a. Set up an amortization schedule for a $19,000 loan to be repaid in equal installments at the end
of each of the next 3 years. The interest rate is 8% compounded annually. b. What percentage of
the payment represents interest and what percentage represents principal for each of the 3 years?
Why do these percentages c

The real risk-free rate is 2.5% and inflation is expected to be 2.75% for the next 2 years. A 2-
year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security?

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Laiho Industries’s 2015 and 2016 balance sheets (in thousands of dollars) are shown.a. Sales
for 2016 were $455,150,000, and EBITDA was 15% of sales. Furthermore, depreciation and
amortization were 11% of net fixed assets, interest was $8,575,000, the corporate tax rate was
40%, and Laiho pays 40% of its net income a

Precious Metal Mining has $17 million in sales, its ROE is 17%, and its total assets turnover is
3.2 ×. Common equity on the firm’s balance sheet is 50% of its total assets. What is its net
income?

Find the present values of these ordinary annuities. Discounting occurs once a year. a. $600 per
year for 12 years at 8% b. $300 per year for 6 years at 4% c. $500 per year for 6 years at 0% d.
Rework parts a, b, and c assuming they are annuities due.

You have just been hired as a financial analyst for Barrington Industries. Unfortunately,
company headquarters (where all of the firm’s records are kept) has been destroyed by fire.
So, your first job will be to recreate the firm’s cash flow statement for the year just ended.
The firm had $100,000 in the bank at th

Holtzman Clothiers’s stock currently sells for $38.00 a share. It just paid a dividend of $2.00
a share (i.e., D0 = $2 00). The dividend is expected to grow at a constant rate of 5% a year. What
stock price is expected 1 year from now? What is the required rate of return?

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HR Industries (HRI) has a beta of 1.6; LR Industries’s (LRI) beta is 0.8. The risk-free rate is
6%, and the required rate of return on an average stock is 13%. The expected rate of inflation
built into rRF falls by 1.5 percentage points; the real riskfree rate remains constant; the required
return on the market falls

Your firms sells for cash only, but it is thinking of offering credit, allowing customers 90 days to
pay. Customers understand the time value of money, so they would all wait and pay on the 90th