Explain how the degree of operating and financial leverage can change the profitability of the firm when sales levels change significantly. Use examples and explain your answers.

Operating and financial leverage both will result in the magnification of changes to earnings due to the presence of fixed costs in a company’s cost structure. Financial leverage is the enlargement on the bottom half of the income statement on how earnings per share changes in response to changes in EBIT, the pertinent fixed costs is the fixed cost of financing in particular interest. Operating leverage is the enlargement on the top half of an income statement on how EBIT changes in response to changes in sales, the pertinent fixed cost is the fixed cost of operating the business.
Operating leverage can be calculated by dividing the difference between sales revenue and variable cost by the difference between sales revenue and total costs.
If a company has $10,000 in sales revenue, $5,000 in variable costs, $2,000 if fixed costs (therefore $7,000 in total costs), its operating leverage would be ($10,000-$5,000)/ ($10,000-$7,000) =1.67. On the other hand, if that same company had $2,000 in variable costs and $5,000 in fixed costs, which results in the same total costs of $7,000, its operating leverage would be ($10,000-$2,000)/($10,000-$7,000)=2.67 (http://www.ehow.com/info).
A positive financial leverage means that the assets acquired with the funds provided by creditors and preferred stockholders generate a rate of return that is higher than the rate of interest or dividend payable to the providers of funds. Positive financial leverage is beneficial for common stockholders. For example, XYZ Company obtains a long term debt at a rate of 12%. The company can use the funds to earn an after-tax rate of 14%. The interest on debt is tax deductible. If the tax rate is 40%, the after-tax interest rate would be 7.2% [12% × (1 – 0.4)]. The difference of 6.8% (14% – 7.2%) is, therefore, the benefit of common stockholders.
A negative financial leverage occurs when the assets acquired with the debts and preferred stock generate a rate of return that is less than the rate of interest or dividend payable to the providers of debts or preferred stock. Negative financial leverage is a loss for common stockholders.

Brigham, E. F., & Houston, D. J. F. (2014). Fundamentals of Financial Management, Concise Edition (with Thomson ONE – Business School Edition 6-Month Printed Access Card), 8th Edition. [VitalSource Bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/9781305217218/outline/13

Corporate Finance – Effects of Debt on the Capital Structure. Retrieved from www.investopedia.com/…/debt-effects-capital-structure.asp
What Effect Does Operating Leverage Have on a Company’s Profits? Retrieved from http://www.ehow.com/info

What is the relationship between business risk, financial risk, and beta (systematic or market risk).

Business risk is the possibility that a company will have a lower than expected profits or that it will experience a loss rather than a profit. Business risk can be influenced by a number of factors, including sales volumes, per-unit price, input costs, competition, and overall economic climate and government regulations. A business with a higher business risk should choose a capital structure that has a lower debt ratio to ensure that it can meet its financial obligations at all times.
Financial risk is the possibility that shareholders will lose money when they invest in a company that has debt, if the company’s cash flow proves insufficient to meet its financial obligations. When a company uses debt financing its creditors will be repaid before its shareholders if the company becomes bankrupt.
Beta (systematic or market risk) represents the risk intrinsic to the complete market or the complete market segment. It also represents the chance that an entire market will experience a downturn or even fail. Sources of economic risk are recessions, wars, interest rates, and natural disasters.

What are the implications of a change in the return on equity with an increase in debt financing?

When you have increased debt it will increase the leverage factor for a company. During normal or prosperous times, leverage results in exponential profit returns. During a recession leverage can result in exponential losses. Since return on equity is (earnings per share) / (book value) it should change by increased use of debt. Debt is leverage and should (if used effectively) increase the earnings a company makes without changing book value. A big debt load carries risk because of the response of leverage to the current economic conditions. An increased debt hurts ROE during a recession and benefits ROE during prosperous times. The main benefit of increased debt is the increased benefit from the interest expense as it reduces taxable income. But it would not make sense to over load a company with debt. With an increased debt load the following occurs:
Interest expense rises and cash flow needs to cover the interest expense also rise.
Debt issuers become nervous that the company will not be able to cover its financial responsibilities with respect to the debt they are issuing.

1.What are the pros and cons of the decision rules for the NPV, the IRR, the MIRR, and the payback methods? Which is the most accurate method and why?

The Net Present Value (NPV) is maybe the most commonly used technique for evaluating a potential investment opportunity. Using this technique all cash flows in a business case at the opportunity cost of capital. The pros- accounts for the fat that the value of a dollar today is more than the value of a dollar received a year from now- that is the time of money concept. Another pro is that is that it recognizes the risk associated with future cash flow, its less certain. Cons- is that it does not give visibility into how long a project will take to generate a positive (NPV) due to the calculations simplicity. One other drawback is that the model assumes that capital is abundant- that there is no capital rationing.

The Internal Rate of Return (IRR) or discounted cash flow rate of return gives analysts a way to quantify the rate of return provided by the investment. The internal rate of return is defined as the discount rate where the (NPV) 0f cash flows are equal to zero. The pros- is mainly accepted in the finances as a quantified measure of return and it’s also based on discounted cash flows- so accounts for the time value of money. When it is used correctly it can provide excellent guidance on a project’s value and associated risk. Cons- There are three, one is multiple or no rates of return, two changes in discount rates and three IRRs do not add up.
The Modified Internal Rate of Return (MIRR) assumes that positive cash flows are reinvested at the firm’s cost of capital, and the initial outlays are financed at the firm’s financing cost. Therefore, MIRR more accurately reflects the cost and profitability of a project. Cons-the MIRR overcomes the reinvestment assumption of IRR and serves as a much better metric for ranking projects. The cons of MIRR are that it requires two inputs not required by IRR: the reinvestment rate and the finance rate. But the result is far more meaningful. It allows comparisons among projects with widely different patterns of cash flows.
The Payback Method will allow a company to see how rapidly a project returns the initial investment back to the company. In general companies establish rules around payback when evaluating a project. Pros- it will allow for an easy understanding by management and stakeholders of when the initial investment will be recovered. Cons- It does not take into account the time value of money. Discounted cash flow should be the preferred way to evaluate payback since it does recognize the time value of money.
Even though the (NPV) and (IRR) methods yield better decision making data based on them being leading edge capital budgeting techniques, the payback method is not without reason. The payback method is a quick and easy way to filter a project to see if the time should be spent to further analyze whether the project should move forward. The (NPV) and (IRR) methods both give good accept reject results. Nevertheless, (IRR) is the preferred method by most since its results are portrayed in rates of return, which most financial managers see as illustrative across the board.

Sunk costs are costs that have already been incurred without prospect. Because they are in the past they cannot be changed by the decision to accept or reject the project. Sunk costs are not incremental cash outflows.
Pertinent cash flows are inflows and outflows of cash whose inclusion or exclusion from investment appraisal can affect the overall investment decision. Which means that finance or funds have already been committed will not be considered while performing your capital budgeting. Once the company incurred the expense, the cost became irrelevant for any future decision.

Brigham, E. F., & Houston, D. J. F. (2014). Fundamentals of Financial Management, Concise Edition (with Thomson ONE – Business School Edition 6-Month Printed Access Card), 8th Edition. [VitalSource Bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/9781305217218/outline/12
Benefits Realization and Business Cases. Retrieved from http://benefitsrealization.blogspot.com


Samsung’s background
• Samsung was founded by Lee Byung-chull but as an exchange business centered in Su-dong in 1938.

• The corporation entered the industry of electronics in the 1960’s but in 1993 the company was reorganized to concentrate on three productions microchip technology, manufacturing, compounds.

• It has carried on to spread out in the cellular industries , to become the biggest producers of cellular phones in 2013 and to remain a lead producer, the company has allocated $5-6 billion dollars to improve its Huston Texas semiconductor manufacturing facility.

Samsung’s Mission Statement
The company does not have an authorized mission statement but we follow a simple business philosophy: “to devote our talent and technology to creating superior products and services that contribute to a better global society”. (www.strategicmangementinsight.com)

Samsung’s vision Statement
Samsung’s vision is to provide economic contribution to the nation, be a global responsible citizen, and be an ethical business. Samsung upholds the belief in combined responsibility to the world at large. We will conduct ourselves to the utmost ethics to be able to successfully be a factor to a greater society.

Samsung’s Values
The company trusts that living by sound values is vital to good business. The core values that are listed below with a meticulous code of conduct is at the center of all our decision making:
• People
• Excellence
• Change
• Integrity
• Co-Prosperity

The History of the Samsung TV. Retrieved from http://www.ehow.com/about

Samsung Mission Statement | Strategic Management Insight. Retrieved from http://www.strategicmanagementinsight.com/mission-statements

History of Samsung. Retrieved from http://www.ezinearticles.com/?History-of-Samsung

Communicating with a Cross-Cultural Workplace

An examination of the target audience is crucial for communication to be successful. This group is very diverse and dissimilar. So the message has to be kept in mind by the presenter. The presenter has to be very effective in the message that he is trying to convey and to connect with his audience effectually.
The presenter has to analyze his or her target audience so that his or her speech will have an enduring effect on the listeners. The analysis is meant to make sure that the audience understand the message that is trying to be relayed. It will comprise of all elements that deal with the target audience in reference to their age, culture, ability and education.
Doing an analysis is vital for the target audience because it will help the presenter to include more information in his or her presentation and substance so that it will be relevant and collaborative. The group consists of people where this is their first job and veterans of the workforce. This group has an age difference as well as differences in ethnicity and it also includes two people with a disability.
With the group consisting of new entrants to the workforce and veterans, the veterans of the group can be helpful with the presentation and the group’s activities. They can relate their experiences to the younger members of the group. They can also share their assessment on how the work place has changed and how important diversity is and how important it is to be able to communicate with a diverse workforce.
The demographics of this group has to be completely comprehended so as not to offend anyone or that anyone in the audience will associate with. The presenter has to keep in mind that some in the audience might have a different understanding of what is being presented. The more experienced employees of the group will probably have a more understanding but the new younger applicants may now have an understanding of why having a diverse workforce is needed. Also why a cross-cultural workforce is needed. It is imperative that the audience is all on the same page and understands the fundamentals and how important the topic is and that their interest is maintained throughout the presentation.
Doing an audience analysis will also help with documenting the feedback from the audience. This could help with future presentations and make the next presentation more relevant to the audience.
Since the group audience consists of twenty people, the room could have five round tables with four chairs and each table. This will ensure a more interactive participation among those at the tables. The group can get better acquainted with each other. Each table should have a diverse group. Each occupants at each table should be as follows:
• One upper level employee.
• Three entry level employees that have some business experience.
• One entry level employee with no business experience.
The two disabled hires should be seated at different tables. Additional elements that should be considered when choosing the three entry level employees at each table and on the whole the seating arrangement should be:
• Gender
• Ethnicity
If at all possible each table should be diverse so that the meeting will be more collaborative and knowledgeable. Each participate should present personal information and thought-provoking facts about themselves.
Since the subject of this lecture is “Communicating with a cross-cultural workforce” the substance should be about the ensuing topics:
• Background of the organization with respect to the work force.
• On how the organization supports working with a gender and racially diverse workforce.
• On how the differently abled people are given a common platform to perform and showcase their skills.
• On how the different organizations have evolved into places with profound diversity and how it is helping business do better with different perspectives.
• The presentation should also include the need for such diversity at workplace and how this view has been adopted by successful organizations world over.
The presentation should keep the audience attention throughout the program. If it is too long you will lose their interest.

Handouts should include:
• A welcome kit and a profile of whoever is giving the presentation.
• Include data about such as e other employees in the audience their education, and work experience.

• Data on the company and the workforce in the company.
• A form for the participants to give feedback and make recommendations.
• A short multiple choice test to see how well the participants were paying attention to the presentation.
For visual aide include videos about other organizations that have implemented and promoted a diverse cultural plan such as McDonalds, Target, and Apple.

Barrett, D. (2009). Leadership Communication, 3rd Edition. [Vital Source Bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/0077435176/id/ch09
Audience Analysis. Retrieved from www.audienceanalysis.org

The Neiman Marcus Group, Inc.

To: Top Management

From: Darlene Richardson

Subject: Summary of financial performance of Neiman Marcus in the fiscal year 2013 and 2014

Date: 18-11-2014


This memo is to reflect and offer a relative analysis of the performance of Neiman Marcus in the fiscal year 2013 and 2014. The analysis contains the following statistics of financial performance of Neiman Marcus;
• Employee turnover rate
• Sales
• Profits
• Expenses
• Stock Prices
• Any other applicable figures for your organization
For accounting procedures companies and governments use a fiscal year to make and formulate monetary statements. The fiscal year for Neiman Marcus ended August 2, 2014. The fourth quarter of fiscal year 2014 and fiscal year 2014 totals are reported on a 13 week and 52 week basis correspondingly. Nevertheless, incomes on the 53rd week are not entered in any equivalent income computations.
Neiman Marcus broadcasted the conclusion of the purchase of Neiman Marcus by an investor group led by a private investment money that is affiliated with Ares Management I.P. and Canada Pension Plan Investment Board. The statements represent the company’s income prior to the attainment.
Employee Turnover Rate:
Neiman Marcus has 16,500 employees as of the ending fiscal year of 2014 an increase of 5.1% from the previous year for its one year employee growth and a 2% increase in the three year employee growth.
With the help of “PeopleAnswers” Neiman Marcus conducts intensive school field interviewing so as to recruit the most effective and brightest graduates into its international government development program, the backbone of Neiman’s ability to manage the business of fashion. Two times a year, Neiman Marcus travels to twelve schools, devoting many days testing and interviewing prospects.
“PeopleAnswers” has made a significant influence on the hiring process. Hiring cost have been lowered and also thanks to their Behavioral DNA ideal profile matching we have been able to reduce the turnover rate.
Sales, Profits and Expenses:
Neiman Marcus reported for the quarter the total revenue of $1,112,680,000 compared to $1119, 080,000 from the previous year. Operating earnings were $7,170,000 compared to $43,872,000 from the previous year. The reported loss before income taxes were $65,488,000 compared to earnings of $9,682,000 from the previous year. The net loss $42,056,000 compared to earnings of $2,883,000 the previous year. Capital expenditure was $62.4 million compared to $42.9 million the previous year. EBITDA was $96.7 million compared to $96.4 million the previous year. The adjusted EBITDA was $105.8 million compared to $106.8 million the previous year.
Stock Prices:

The stockholders equity is up from 2013 as seen on the chart above.
The stock is down from November 3rd, which was at 17.12. As of November 14th the stock is listed at 16.57.

Barrett, D. (2009). Leadership Communication, 3rd Edition. [VitalSource Bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/0077435176/id/ch06
Neiman Marcus Group LTD LLC: Private Company Information-Businessweek. Retrieved from http://investing.businessweek.com/research/stocks/private/sanpshot.asp?privcapld
Neiman Marcus Reduces Recruiting Costs and Turnover with PeopleAnswers. Retrieved from http://www.peopleanswers.com/results_caseStudies_detail

Communication Ethics

This is some of what the Hershey’s code of conduct says. Hershey has set forth a Code of Ethical Business Conduct by which it will conduct its operations. Their code comprises of a variety of topics, such as the use of corporate funds, conflicts of interest and protection of company information. The code applies to all directors, officers, and employees, both in the United States and worldwide, which makes it very clear that the expectation of these criteria are to be respected in all job related activities no matter the business pressure.
The Code of ethic state that the managers have a combined duty by leading by example and to make sure that the Code is obeyed and followed in areas that are under their supervision. It also states that no matter what position you hold in the company, violations of the Code will not be allowed.
Hershey has outline the behaviors in its code of conduct that everyone in the company must follow, so that the company’s ethical standards are upheld. Hershey established a code to show how to resolve ethical dilemmas and provide the contact information that should be used when there are any questions or concerns.
The responsibilities of the employees and directors are to acquaint themselves with and follow all policies, laws and regulations that apply to their jobs. They have a commitment to their consumers. They want to uphold the trust consumers have in their brand by providing the best products and by observing honest marketing practices.
Hershey’s managers are to act as role models by holding themselves to the uppermost standards of the Code and ethical business conduct. They are to support the code and make sure that all employees understand, follow the code and know exactly what is expected of them. Employees should be in an environment that is positive and they should be comfortable enough to raise questions and concerns. Managers are to make sure that all employees obtain training concerning the Code.
Any known suspected ethical or illegal transgressions must be reported immediately and any retaliations or acts of retaliation should never be ignored. Any manager that does not report any violations that they are familiar with or should have been familiar with could be disciplined up to and including termination, this also applies to the executive offices.
The founder of Hershey, Milton Snavely Hershey, in 1938 was requested to account for his formula for achievement. He said, “I don’t know that I have a recipe, I have always worked hard, lived rather simply, and tried to give every man a square deal. That’s why perhaps, I’ve been in business so long-sixty-two years. You can’t cheat and lie and steal and continue to keep in business.” (www.thehersheycompany.com/…/code-of-conduct). I believe the founder of the company was dedicated to being honest and fair with his employees as well as his customer.
The Hershey Company is trying to have all its employees to perpetuate Mr. Milton Hershey’s legacy of being honest, fair and to never cheat the customers, each other or anyone associated with the company. They have provided a Code of Conduct for all its employees but they also advise that it is not a substitute for good judgment. They asked that all employees take the time to read the code very carefully and familiarize themselves with their standards and to respect them accordingly.

Barrett, D. (2009). Leadership Communication [VitalSouce bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/0077435176/id/ch04
The Hershey Company. The Hershey Company Code of Conduct. Retrieved from www.thehersheycompany.com/…/code-of-conduct

Communicating Bad News

Communication in business is the primary models of ensuring operations are conducted in the affable method they are supposed to. In order for communication to be effective it needs to be delivered effectively and in the language that one understands (Berko, 2010). A response should be provided in order to ensure that the message conveyed has been understood and received and will be useful to the knowledge of the recipient. In a business setting, communication should element the language fluency as well as be respectful and understood by all recipients.
Superior Foods Corporation Case Study
Superior Foods Corporation is a prestigious company that has managed to hire an estimate of thirty thousand employees in the eight nations that it has set up divisional facilities for daily production. The main product is in the exportation of the United States meat products such as pork, beef, sausages which have all undergone the processing stage to ensure they can reach their respective destinations without going stale. However, the occurrence of the mad cow disease has gradually enveloped a new status for the company in reduced exportation of their meat products. As a result, the company does have to resolve to fire twenty-five percent of the employees currently hired in their Nebraska city facilities. This message does need to be conveyed to the employees in the best possible way even though the leaders will be communicating bad news.
Purpose of communicating this bad news
The main purpose of communicating this bad news is in order to avoid a much bigger conflict of employees feeling as though they were fired unfairly and taking this matter to court. They need to understand that with the reduced level of sales the company is unable to sustain their employment especially since this will be an added expenditure that the company cannot cover. The employees need to know that they are not being laid off due to age, poor work performance or any form of biases towards them. This will also contribute by helping to prepare the employees for the changes that are about to occur (Mind tools, 2014).
Idea- generation approach
The main technique used in this case study is the derivative idea. This procedure involves taking something that is already existing and changing it. In this case the company’s division in Nebraska was the largest production and exporter and thus did have the largest number of employees. The change that would be conducted on it would be reducing the number of employees, in order to reduce the expenditure and avoid the product of products that are currently not selling in the international market.
Message to the Employees
The Superior Foods Corporation has always marked with great strength the support each one of our employees’ provides in your job positions. The company has always registered great levels of success especially with the exportation of our meat products, and we applaud every one of you for always working in a manner that superseded your current level of experience. This company is represented by each one of you with a prestigious reputation.
However, the company is currently affected by the rate of reduced exportation to the extent that the company has to make the toughest decision to lay off twenty-five percent of the employees in our company. This decision has come up as the only way to keep the organization afloat and only hopes that the work experience and skills acquired here will open greater career opportunities to the individuals that will part ways with us.
There will be no bias selection and every employee selected for the layoff. You will all be provided a guarantee of a good reference from this company to help support your future acquisition of a job position in a new company. If any of you do have any questions in regards to this matter and the progress feel free to consult the management staff. This company expresses sincere apologies for having to undertake this procedure as a means to secure the stability of the organization. Everyone should be able to have the privilege of job security in this company. However, the most recent unfortunate events have forced the company to make this tough decision and only hope that you all understand the situation at hand. The Superior Foods Corporation truly wishes the employees who will part with us a successful future as they venture into new career grounds.

Barrett, D. (2009). Leadership Communication [VitalSouce bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/0077435176/id/ch02
Berko, R. M. (2010). Communicating. 11th edition. Communication: Management. Boston, MA: Pearson Education, Inc. pg. 9-12.
Mind Tools. (2014). Delivering bad news: Communicating under pressure. Communication skills. Retrieved from: http://www.mindtools.com/pages/article/bad-news.htm

1. Describe the differences between the yield to maturity (YTM) and the yield to call (YTC) on a bond. Why would the return to the investor be different if a bond is called? Why?

The two common metrics for describing bond return are yield to maturity (YTM) and yield to call (YTC).Yield to maturity is the yield of the bond if it is held until maturity that is for the duration of the bond. Yield to maturity is an example of time value of money and investment risk-based returns. A yield to maturity is the effective interest rate earned on an investment for a particular price, assuming that the investor holds the investment to maturity. Yield to maturity in essence is the effective compounding interest rate that accumulates investment earnings over the remaining years to an investment’s maturity. You can think of yield of maturity as (the interest earned + (principal value – purchase price) divided by the principal price of the bond divided by the number of years the bond is held.
Yield to call measures what the yield on a bond will be if it is called at the earliest possible call date. Mainly, you can think of the yield to call as (the interest earned + (sale price – purchase price) divided by the purchase price of the bond divided by the number of years the bond is held.
When an issuer calls a bond it pays investors the call price (usually the face value of the bonds) together with the accrued interest to date and at that point stops making interest payments. An issuer may choose to call a bond when current interest rate drop below the interest rate on the bond. This way the issuer can save money by paying off the bond and issuing another bond at a lower interest rate. When an investor whose bond has been called, they are often faced with reinvesting the money at a lower, less attractive rate. Because of this callable bonds often have a higher annual return to compensate for the risk that the bonds might be called early.

2. What are bond ratings and how do they affect the ability of the firm to raise funds? Are these ratings similar to the ratings for a country or a company?
A company’s bond rating presents awareness into the company’s financial strength. If the bond rating is good the company is strong enough to pay its obligations. A lower rating indicates the company’s financial health is failing and may mean that a company is having problems paying its debts. The highest rating that is issued by S&P is AAA. The grades AAA, AA, and A are considered “investment grade” or of high quality. The grades B’s and C’s indicate poor grades and anything lower than that is considered to be very risky (they are referred to as junk bonds). When companies need to raise money, issuing bonds is one way to do it. A bond functions like a loan between an investor and a corporation. The investor agrees to give the corporation a specific amount of money for a specific period of time in exchange for periodic interest payments at designated intervals.
A credit rating can be useful not only for an investor but also for individuals looking for investors. An investment grade rating can be put a security, company or country on the global radar, which can attract foreign money and boost a country’s economy.

3. What are the differences between common stock and preferred stock? Explain your answers.
Stocks are not all created equal. There are two main types of stock common and preferred stock. Both common and preferred stock represent some degree of ownership of a company. Someone with common stock gives them the opportunity to vote in the election of the board of directors. Which is usually is equivalent to one vote per share that a person owns. Having preferred stock usually guarantees the payment of dividends but does not come with voting rights. Having either type of stock entitles you to a piece of the company’s profits. Common stockholders never know the value of their dividends in advance, whereas preferred stockholders receive dividends at a fixed rate. While dividends on preferred stocks tend to be higher than those on common stock, they will not appreciate with company growth.
In the case of bankruptcy preferred stock owners rank above common stock owners but below ordinary bondholders. Common stock tends to respond to general market instability and its level of risk also varies greatly by company. However, when viewed over long investment holding periods, common stocks have historically offered higher returns than preferred stocks or bonds,

Brigham, E. F., & Houston, D. J. F. (2014). Fundamentals of Financial Management, Concise Edition (with Thomson ONE – Business School Edition 6-Month Printed Access Card), 8th Edition. [VitalSource Bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/9781305217218/