Iron Ore What? (IOW) Casting Company is considering adding a new line to its product mix. Sydney Johnson, a recently minted MBA, will be conducting the capital budgeting analysis. The new production line would be set up in unused space in IOW’s main plant. The machinery invoice price totals approximately $250,000, with another $20,000 in shipping charges and $30,000 to install the equipment, for a total requirement estimated at $300,000. The machinery has an economic life of 4 years, and IOW has obtained a special tax ruling that places the equipment in the Modified Accelerated Cost Recovery System (MACRS) 3-year class. After 4 years of use the machinery is expected to have a salvage value of $25,000.

The new product line would generate incremental sales of 1,350 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 each in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 15% of sales revenues. The firm’s tax rate is 40%, and its overall weighted average cost of capital is 12%.

1. Calculate and provide the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows?
2. Construct 4 years of annual incremental operating cash flow statements for IOW Casting Company. Estimate the required net working capital for each year, and the cash flow due to investments in net working capital. Calculate the after-tax salvage cash flow.
3. Calculate the net cash flows for each of the 4 years. Based on these cash flows, what are the project’s NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest the project should be undertaken? Explain.
4. What does the term “risk” mean in the context of capital budgeting? To what extent can risk be quantified, and, when risk is quantified, is the quantification based primarily on statistical analysis of historical data or on subjective, judgmental estimates? Provide your rationale.
5. Describes sensitivity analysis and discuss a) its primary weakness; and b) its primary usefulness? For the IOW project, perform a sensitivity analysis on the unit sales, salvage value, and cost of capital. Assume that each of these variables can vary from its expected, or “base-case” value by ± 10%, ± 20%, and ± 30%. Include a sensitivity diagram, and discuss the results.
6. Assume that Sydney Johnson is confident of her estimates of all the variables that affect the project’s cash flows except unit sales and sales price. If product acceptance is poor, unit sales could be only approximately 1,000 units a year and the unit price would be set at $150. Conversely, an excellent consumer response could produce sales of 2,000 units and a unit price of $220. Sidney believes that there is a 25% chance of poor acceptance, a 25% chance of excellent acceptance, and a 50% chance of average acceptance (the base case). What is the worst-case NPV? The best-case NPV? Use the worst-, base-, and best-case NPVs and probabilities of occurrence to find the project’s expected NPV, standard deviation, and coefficient of variation.
7. Explain scenario analysis and any problems, issues, or concerns that surround this type of projection.
8. Define simulation analysis, and discuss its principal advantages and disadvantages.
9. Assume that IOW’s average project has a coefficient of variation in the range of 0.2 to 0.4. Would the new product line be classified as high risk, average risk, or low risk? What type of risk is being measured here?
10. IOW typically adds or subtracts 5 percentage points to the overall cost of capital to adjust for risk. Given this consideration, should the new line be accepted? Explain.
11. Describe other subjective risk factors that should be considered before the final decision is made, and their individual impact on the project.

Pick three stocks of your choice (Select stocks listed in the USA exchange traded market), preferably from different industry groups. Go to the recommended websites or any other website that offers historical stock price data or to published information sources such as Yahoo Finance, or Google finance or any other reliable source of financial information. Extract weekly (for example, every Friday) closing share prices for the most recent 28 weeks. Also extract the values of the stock market index, (represented by S&P500 index or All Ordinaries in US), on a weekly basis over the same time period.

Required

Part 1 (30 marks)

(a) The rate of return in each week for each stock and for the stock market index for the 27 weekly periods. Calculate the discrete rate of return as well as the continuously compounded rate of return. Calculate the arithmetic mean return and the geometric mean return of each stock for the entire period. Use only the discrete returns for your calculations and for the calculations in the questions that follow. (10 marks)

(b) The variance of returns for each stock and the index and the covariances of returns between each pair of stocks, the covariance between each stock and the stock market index, and the corresponding correlation coefficients. (5 marks)

(c) Compare your results in (a) and (b) for each stock and the stock market index and comment on the risk return characteristics and performance of each of your stocks and the index. Illustrate with tables/charts as appropriate. Comment on the results, relating to what you have learnt in this course. Relate the risk return pattern and the performance of the market index and your stocks to relevant events that took place during this period. Draw on economic, political, industry and company related events that took place over this period that may have impacted on the performance of your stocks and the market index. Give bibliographic references to the sources of your information. (15 marks)

Part 2 (10 marks)

(a) Based on the discrete returns calculations in Part 1, compute the weekly rate of return and the variance of an equally weighted portfolio formed from the three stocks. Make use of your knowledge of matrix algebra in your calculations. (5 marks)

(b). Examine and compare the pattern of the returns of your portfolio with those of the individual stocks, and the stock index. Compare the corresponding variances. Comment on your observations, relating to material learnt in this course. (5 marks)

Part 3 (45 marks)

(a) Extract for each week, the yield of the 26-week Treasury bill (or equivalently the 90 day or 180-day bank accepted bill from the financial media (i.e. Federal Reserve Bank: http://www.federalreserve.gov/default.htm) over your sample period. (Remember sometimes reported yields are usually annualised figures. Convert the yields to weekly numbers. Use these as a proxy for the risk free rate).

(5 marks)

(b) Estimate the Security Characteristic Line (SCL) for each of your stocks and the equal weighted portfolio, based on the ‘Market Model’, using excess returns (discrete returns less the risk free rate), using Excel regression analysis functions. Show your results graphically. From your results, compute the Beta and the Jensen’s Alpha of each stock and the portfolio. (15 marks)

(c) Calculate the total risk (the return variance) of each stock and the portfolio. Partition the total risk to their respective systematic and unsystematic risk components. (10 marks)

(d) Based on your observations and results in parts (b) and (c) above, comment on each of your stock’s and portfolio’s performance, and on their risk characteristics, comparing and contrasting the magnitude and the proportions of their systematic and unsystematic risk components. What further insights can you gain on the characteristics and behaviour of your stocks and portfolio compared to the analysis and observations you made in Part 1 (c) and Part 2 (b)? (15 marks)

Part 4 (15 marks)

From the point of view of an investor who wishes to evaluate whether the stocks that you examined are worth investing in, how useful was the analysis you carried out on these stocks? What limitations do you see in your analysis and results for investment decision making purposes? What further analysis would you wish to carry out? Explain.

__________________________________________________________________________________

Examples of websites for sourcing data

Major Indices in US:

https://au.finance.yahoo.com/

US Interest Rate or FED data:

http://www.federalreserve.gov/default.htm

Stock market data:

https://www.google.com/finance
Other useful sites:

https://www.stlouisfed.org/

https://research.stlouisfed.org/fred2/

https://apps.newyorkfed.org/markets/autorates/fed%20funds

1. If you were assigned to work a year in one of the following types of teams and had to choose only one, which would it be and why? (a) functional team, (b) cross-functional team, (c) self-managed team, (d) shared-leadership team, and (e) multiteam systems (MTSs)

2. Leaders can improve the chances for a successful change outcome by following Kotter’s eight-step change theory. Pick three of the eight-step change theory components and give an example for each step that explains how leaders can implement it to effect change.

Support your claims with examples from required material(s) and/or other scholarly resources, and properly cite any references.

Unit 2 Essay: Propaganda and Rhetorical Analysis
DUE DATE
MONDAY, OCTOBER 19, 2020, 08:00 A.M.
Upload to Canvas in one of the following formats, using the
“Submit” button on the official Assignment 1 page:
‣ Portable Document Format .pdf
‣ MS Word .doc or .docx
VALUE
10 points; graded (scored). (Late submissions will result
in a lowered grade, as explained in 0.2 Course Overview,
Goals, and Objectives.)
CONTEXT
In this unit, you have read, discussed, and critically
examined a variety of texts examining propaganda, truth
and “post-truth,” and media manipulation of public opinion.
ASSIGNMENT TASK
Select a short news article or news story you believe to be
an example of propaganda, media bias, and/or
manipulation of “truth.” (See “Rules About Outside Texts”
for more details about what you can use.) Then, compose
an essay in which you evaluate that text’s rhetorical
attributes, then respond with your own critical arguments
to its claims and ideas and techniques.
Your essay must quote and/or paraphrase five of the
assigned readings from Units 1 and 2, and cite them—
both, parenthetically and bibliographically—on a Works
Cited page in proper MLA style. Do not use the same
quotes included in your Unit 1 essay.
Rules About Short News Articles and News Stories
As long you can justify it as “propaganda, media bias,
and/or manipulative of the ’truth,’” the example of news
you choose for rhetorical analysis and critical response is
up to you, even if it’s a work of news satire or advertorial
news. It doesn’t expressly have to be journalism.
Permitted texts include
‣ written journalism, such as a news article, news
editorial, or news blog;
‣ a single story segment in a cable or streaming news
program (for which you’ll need recording capability so
that you can accurately quote and cite these);
‣ an advertisement that pretends to be journalism or
science writing;
‣ a selected piece of news satire contained in a tabloid,
website, or tv/cable/streaming program.
The text you choose must, however,
‣ be an actual agenda-based text: it must use
language, imagery, situation, and characters you can
analyze rhetorical, and not merely represent an
ideological position;
‣ be individual, specific, and relatively short, rather than
be a large work or a series, collection, or campaign;
‣ not be originally produced for YouTube or other social
media platform (if it ends up being archived on social
media, that’s okay, but it must at first be legitimately
produced for another medium;
‣ have, or seem to have, credibility and/or be affiliated
with institutions that are, or which are made to seem,
credible.
Please don’t choose political speeches, tweets, and texts,
nor bigoted diatribes, as these are expressly and openly
written to propagate a political ideology (i.e., they are
obvious choices for propaganda).
ESSAY DEVELOPMENT
This will be your first essay of the semester that demands
a consistent pattern of development and tone.
‣ Your essay doesn’t need to have exactly five
paragraphs, but it must be structured with a clear
introduction, body, and conclusion.
‣ The body of your essay must be composed in two
parts:
✓ one-third to one-half, rhetorical analysis;
✓ one-half to two-thirds, critical response.
‣ Paragraphs must demonstrate development in five
stages: claim, explanation, support, interpretation,
conclusion. (Review module item 2.8 INFO • The 5-
Stage Body Paragraph.)
Make sure you use the Scoring Rubric for this assignment
to remind yourself about how to develop this essay
effectively. (See below.) The essay’s pattern of
development and sequence of organization should be as
follows:
A. Three-stage introduction: start with a single introductory
paragraph that introduces
• the general subject matter in an interesting way;
• author(s) w/credentials, and the full title of text;
• a thesis asserting your main response argument.
B. Rhetorical analysis: In at least three separate
paragraphs, summarize and explain the methods and
motives of the author’s rhetorical choices, including, but
not limited to,
English 120: College Composition and Reading Instructor: K. Sherlock
• audience awareness;
• voice;
• purpose;
• persuasive appeals.
C. Critical response: explain and support your own
agreement, disagreement, or reaction to the content of
the text. Your critical response must
• be at least three expository/analytical body
paragraphs;
• use and cite quotations or other support from a
minimum of three different texts that were required or
optional for this unit.
D. Conclusion: a concluding multi-sentence paragraph that
summarizes and/or encapsulates your own response to
your selected topic.
E. Works Cited: include at the end of your essay a properly
formatted MLA style Works Cited with citations for all
the sources used in your essay, including the outside
text(s) you enlisted for this assignment and any of the
assigned/recommended unit texts.
REQUIREMENTS AND GUIDELINES
‣ Your essay must be composed in proper MLA document
design. Please just take the no-fuss alternative and
download the MLA document template for this purpose,
a button for which is available at the top of this page.
‣ You may not refer to yourself anywhere in the essay,
particularly in the critical response half. Do not use
pronouns such as “I,” “my,” “me,” and “mine.”
‣ Though you will analyze another author’s use of rhetoric,
you should heighten you awareness of your own:
choose vocabulary that is clear and appropriate for your
audience, and steer clear of common errors of usage
and tone.
‣ A Works Cited, required for this assignment, should be in
proper MLA citation style (again, as prompted by the
MLA document template you are asked to us).
‣ When you upload the final draft of your essay, make sure it
conforms to the proper file-naming protocols. Also, make
sure it’s saved in one of the supported file formats: .doc,
docx, or .pdf.
ASSESSMENT/SCORING RUBRIC
Successful completion of this assignment will be determined
by the following criteria, each of which is explained further in
the scoring rubric for this assignment:
• 10% Introduction: 1) three discernible stages of
development; 2) author’s full name (or sponsoring
agency), correctly spelled, and full primary title correctly
capitalized and marked by italics or quotation marks; 3)
thesis making a general assertion about the rhetorical
effectiveness of the text, followed by a complex
response argument of your own.
• 25% Rhetorical Analysis: Following the guidelines for
content and rhetorical analysis, summarize the main
ideas of the text in one paragraph; then, in a minimum
of two additional paragraphs, examine and detail the
rhetorical elements used by the author.
• 35% Critical Response: A successful critical response
should 1) maintain a consistent position or point of view
about the author’s content; 2) draw from a minimum of
three required or recommended unit texts 3) use as a
framework for discussion concepts of trust, skepticism,
and manipulation of the truth purported by the authors
of those texts (e.g., Marshal McLuhan’s premise “media
is the message” or Katherine Hawley’s discussion of
“self-trust” etc.). Besides reacting to the text, try to
provide an implicit answer to question such as, “Why is
my reaction important?” or “What change or ideas do I
advocate in this response?” or find your own complex
question.
• 05% Conclusion: A brief paragraph that summarizes and/
or encapsulates your own response to your selected
topic should conclude the essay and be clearly
separate and distinct from the Critical Response part of
the essay.
• 15% Writing Competency: Competent writing should 1)
avoid common errors of grammar, punctuation,
sentence mechanics, and usage; 2) contain effectively
organized and cohesively developed paragraphs that
have controlling topic statements, clear explanation,
good use of support, and proper discussion/
interpretation of these; 3) use language with precision
and control; 4) use a respectfully neutral tone free of
slang, vulgarity, and colloquialisms; 5) demonstrate it
has undergone editing and refinement before being
submitted.
• 05% Document Design and Style: Correct MLA style
should be demonstrate in 1) document design and
layout with regard to title page, margins, headers and
pagination, and typography (font size and types); 2)
double-spacing throughout (including Works Cited);
paragraph indention; parenthetical (contextual)
citations; 3) bibliographic references organized and a
Works Cited set with hanging indentions; 4)
demonstrate it has undergone an adjustment of settings
to effect MLA style, or that it you have made use of the
MLA document template.
• 05% Document Formatting: Document should 1) be saved
in a supported file type such as MS Word or PDF; 2)
possess a file name consistent with the required filenaming protocols (e.g., Lastname_F-120-3030-2-
FIN.pdf).