0

Indian agriculture is characterised by a preponderant majority of small and marginal farmers holding less than two hectares of land, less than 35.7% of the land, is under any assured irrigation system and for the large majority of farmers, the gains from the application of the science & technology in agriculture are yet to be realised. Farmers, therefore, require support in terms of development of infrastructure as well as extension of improved technologies and provisions of requisite inputs at reasonable cost. India’s share of world’s agricultural trade is of the order of 1%. There is no doubt that during the last 30 years, Indian agriculture has grown at a reasonable pace, but with stagnant and declining net cropped area it is indeed going to be a formidable task to maintain the growth in agricultural production. The implications of the Agreement would thus have to be examined in the light of the food demand and supply situation. The size of the country, the level of overall development, balance of payments position, realistic future outlook for agricultural development, structure of land holdings etc. are the other relevant factors that would have a bearing on India’s trade policy in agriculture.

Impact of the Agreemond on Agriculture on the Indian Economy

INDIAN AGRICULTURAL SCENARIO
Indian agriculture is characterised by a preponderant majority of small and marginal farmers holding less than two hectares of land, less than 35.7% of the land, is under any assured irrigation system and for the large majority of farmers, the gains from the application of the science & technology in agriculture are yet to be realised. Farmers, therefore, require support in terms of development of infrastructure as well as extension of improved technologies and provisions of requisite inputs at reasonable cost. India’s share of world’s agricultural trade is of the order of 1%. There is no doubt that during the last 30 years, Indian agriculture has grown at a reasonable pace, but with stagnant and declining net cropped area it is indeed going to be a formidable task to maintain the growth in agricultural production. The implications of the Agreement would thus have to be examined in the light of the food demand and supply situation. The size of the country, the level of overall development, balance of payments position, realistic future outlook for agricultural development, structure of land holdings etc. are the other relevant factors that would have a bearing on India’s trade policy in agriculture.
Implications of the Agreement on Agriculture for India should thus be gauged from the impact it will have on the following:
i) Whether the Agreement has opened up markets and facilitated exports of our products; and
ii) Whether we would be able to continue with our domestic policy aimed at improving infrastructure and provision of inputs at subsidised prices for achieving increased agricultural production.
AGREEMENT ON AGRICULTURE – HIGHLIGHTS
The Agreement on Agriculture forms a part of the Final Act of the Uruguay Round of Multilateral Trade Negotiations, which was signed by the member countries in April 1994 at Marrakesh, Morocco and came into force on 1st January, 1995. The Uruguay Round marked a significant turning point in world trade in agriculture. For the first time, agriculture featured in a major way in the GATT round of multilateral trade negotiations. Although the original GATT – the predecessor of the World Trade Organisation (WTO) – applied to trade in agriculture, various exceptions to the disciplines on the use of non-tariff measures and subsidy meant that it did not do so effectively.
The root cause of distortion of international trade in agriculture has been the massive domestic subsidies given by the industrialised countries to their agricultural sector over many years. This in turn led to excessive production and its dumping in international markets as well as import restrictions to keep out foreign agricultural products from their domestic markets. The obligations and disciplines incorporated in the Agreement on Agriculture, therefore, relate to
(a) market access;
(b) domestic subsidy or domestic support; and
(C)export subsidy

IMPACT OF THE AGREEMENT ON AGRICULTURE ON INDIAN AGRICULTUTRE
Indian agriculture enjoys the advantage of cheap labour. Therefore, despite the lower productivity, a comparison with world prices of agricultural commodities would reveal that domestic prices in India are considerably less with the exceptions of a few commodities (notably oilseeds). Hence, imports to India would not be attractive in the case of rice, tea, sunflower oil and cotton. On the whole, large scale import of agricultural commodities as a result of trade liberalisation is ruled out. Even the exports of those foodgrains which are cheaper in the domestic market, but are sensitive from the point of view of consumption by the economically weaker sections are not likely to rise to unacceptable levels because of high inland transportation cost and inadequate export infrastructure in India.
Because of increasing price of domestic agricultural commodities following improved export prospects, farmers would get benefits which in turn would encourage investment in the resource scarce agricultural sector. With the decrease in production subsidies as well as export subsidies, the international prices of agricultural commodities will rise and this will help in making our exports more competitive in world market
Both the pattern of production and price expectations will increasingly be influenced by the demands and trends in world markets. On the one hand, the price incentive could be the best incentive and could give a strong boost to investment in agriculture as well as adoption of modern technologies and thereby to the raising of agricultural production and productivity. On the other hand, the rise in domestic prices would put pressure on the public distribution system and accentuate the problem of food subsidy & freedom to export agricultural products without restrictions will also need shedding the long-nurtured inhibition against their imports
The freeing of trade in agriculture under the AoA is likely to bring about significant increases in trade in agriculture and give unprecedented opportunities to the developing countries to benefit from increased agricultural exports. But this would depend on the developed countries’ willingness to reduce domestic and export subsidies and provide market access to agricultural exports from the developing countries. On the other hand, trade liberalisation is also likely to pose serious challenges for the developing countries.
The challenges lie first in becoming globally competitive in agricultural exports and secondly, in enabling the sharing of the benefits of trade liberalisation not by a small minority of rich farmers but by the majority of small and marginal farmers and agricultural workers in India.

THE AREAS WHICH NEED IMMEDIATE ATTENTION TO MAKE INDIA EQUITABLE IN THE FIELD OF AGRICULTURE
1.Transitional period available for developing countries for full implementation of the Agreement and the need to extend the same
2. The terms, conditions and tariff structures for ready access by developing countries to other markets
3. Minimal domestic support systems needed to ensure food security, which should go far beyond products and distribution to areas of equitable supply at affordable prices
4. Export subsidies to ensure that Indian commodity exports are competitive in the Global markets, considering that the developed countries have been consistently providing major concessions directly or indirectly to their exporters
5. Non-tariff modalities practised by developed countries, including invoking issues on labour, sanitary and phytosanitary measures
6. Special Safeguard provision, which imposes import restrictions under certain conditions, which are considered to be discriminating against developing countries
7. Impact of phasing out quantitative restrictions by April 2001, which India had enjoyed on the basis of her Balance of Payment (BOP) problems
8. India’s favourable total Aggregate Measure Support (AMS), which being negative, to be taken into account while considering the across the board commitments for tariff reduction agreed to by developing countries

 

0

The main purpose of studying finance is to gain an understanding of the financial performance of a company, corporation or industry. By looking at a company’s financial performance, decisions can be made about many things by many different players. Corporations are rated by different agencies that examine financial records and potential for growth. Fitch ratings are a good example of this. My employer has an A++ Fitch rating. This high rating allows a non-profit company to borrow money at lower interest rates. In a publicly held company, which is one that has shareholders, the main concern is to keep the shareholders happy. Shareholders infuse corporations they believe in (usually based on financial performance) with capital. When a company is considered a poor financial risk, the public will not be in a hurry to buy its stock.

Basic Finance

The main purpose of studying finance is to gain an understanding of the financial performance of a company, corporation or industry. By looking at a company’s financial performance, decisions can be made about many things by many different players. Corporations are rated by different agencies that examine financial records and potential for growth. Fitch ratings are a good example of this. My employer has an A++ Fitch rating. This high rating allows a non-profit company to borrow money at lower interest rates. In a publicly held company, which is one that has shareholders, the main concern is to keep the shareholders happy. Shareholders infuse corporations they believe in (usually based on financial performance) with capital. When a company is considered a poor financial risk, the public will not be in a hurry to buy its stock.
So who is affected by finance? Shareholders, as mentioned previously, are the focus in publicly traded companies. They are not the only people who think about financials, however. The CEO, CFO and any other “C” position have accountability to report to the board about the financial performance of the company. Management is responsible for creating and maintaining both capital and operational budgets. Employees are required to maintain certain standards of productivity. Customers are affected by finances as well. Consider gas prices, and how increased costs in production are passed on to the consumer.
When looking at a company’s finances, there are essentially four items to consider: the income statement, the price earnings ratio, the balance sheet, and the statement of cash flows, (Block, 2005). The income statement is a tool used to measure profitability over a given period of time, i.e. quarterly, annual. The income statement evaluates the cost of producing goods or services and the money that was made as a result of selling those goods/services. Gross profit and net earnings are two key features to look at.
The price earnings ratio measures the relative valuation of earnings, (Block, 2005). This is a way of looking at how your company’s stock earnings compare to other companies both within and outside your industry. This ratio is affected by many variables like marketability, sales growth, and the debt-equity structure of a company.
The balance sheet shows what a company owns, and whether that capital is financed or owned, (Block, 2005). The balance sheet is like a snapshot of the company at one point in time. Company assets may include real estate, plant and equipment, inventory, and investments–like securities. One key element of the balance sheet is liquidity. This refers to the ability to convert assets into cash.
The statement of cash flows is used to emphasize the critical nature of cash flow with respect to a company’s operations, (Block, 2005). Like individuals, corporations have bills to pay. When an individual applies for a loan, the bank will look at a figure called the debt to income ratio. This ratio will tell the lender if the individual will be able to make their mortgage payments, car payments, utilities, etc. based on their current income. This is analogous to a company’s cash flow statement.
Using this basic information, financial analysts can perform more detailed research on the numbers. Ratio analysis, The Dupont Analysis and Trend Analysis are three examples of how financial analysts can use numbers to determine strength of performance and return on investment, (Block, 2005).
When corporations are required to report their financials, they report by the Statement of Financial Accounting Standards, (SFAS), (Block, 2005). This standard includes the income statement, the balance sheet and the statement of cash flows.
With an understanding of the basic financial reporting elements and who is affected by finance, it is time to consider how financial information can be used to make decisions. As mentioned above, more detailed financial analysis yields information on performance. Companies may choose to review their operations or supply chain management if they feel that improving them will reduce costs and increase profitability. Financial information may help steer a company to make decisions about what products or services they want to continue offering, or what services they may want to add.
There are also ethical decisions that must be considered. Take the example of Martha Stewart, who was imprisoned for using insider information to prevent large losses on stock she owned. Financial information may be reported incorrectly or falsified as in the case of Enron and WorldCom. The Sarbanes-Oxley act was created to help remove the threat of individuals with power from covering up financial information to make personal gains.
To conclude, it is important to consider all the key people involved when making financial decisions or reviewing financial performance. There are three essential documents used in financial reporting: the income sheet, the balance sheet and the statement of cash flow, which are all part of the Statement of Financial Accounting Standards. More detailed analysis can be performed using formulas like the Dupont Analysis. Finally, many important decisions are made based on financial data. It is important to ensure ethical handling of potentially damaging information, whether it is helpful or harmful to any party.

0

Moore’s Law states that the number of transistors in an integrated circuit for minimum component cost doubles every 24 months. In effect it has led to an exponential rise in microprocessor performance over the past few decades.

Business to Business Marketing of Processors

Market Overview:

(a) The Microprocessor Manufacturers

Moore’s Law states that the number of transistors in an integrated circuit for minimum component cost doubles every 24 months. In effect it has led to an exponential rise in microprocessor performance over the past few decades.
And as the microprocessors develop, so does the market. Currently, with Apple virtually opting out of the G-series processors (G5, G4) and the failure of Cyrix, the microprocessor market has come to be dominated by two players: Intel and Advanced Micro Devices (AMD).
In this report, we would be considering three microprocessor classes:
(1) Desktop Processors

(2) Notebook Processors

(3) Server or Workstation Processors

The following chart shows the processor unit market share by segment for 2007

Segment Intel AMD
Servers 70.9% 29.1%
Desktops 71.0% 21.0%
Notebooks 85.2% 14.8%

(b) The Computer Manufacturers

World Market- HP is the leader in the world market with 19.1% share. Dell is second with 15.2% share in the world PC market. Acer and Lenovo are tied for third.

Indian Market- In the overall Client PC (Notebooks and Desktops combined) market the rankings remained unchanged. HP retained the top spot with a market share* of 21%, followed by HCL at 14%, Lenovo at 9% and Dell at 6% in terms of unit shipments.

In the total desktop PC market, HP led the market in CY 2006 followed by HCL and Lenovo. In terms of total commercial desktop PC shipments* HCL and HP jointly shared the number one position in CY 2006 followed by Lenovo. In terms of total consumer desktop PC shipments* HP led the market in CY 2006 followed by HCL and LG Electronics.

In the total Notebook PC market alone, HP retained the top spot with a market share of 38% in CY 2006 in unit shipments. Lenovo and Toshiba were at second and third spots with market shares* of 17% and 10%, respectively.

Marketing Strategies

Microprocessor manufacturers:

Intel
Keeping in view the needs of rural India, Intel has launched a “ruggedized” personal computer. These computers are designed to withstand adverse weather conditions including heat, dust and humidity and can run on alternate power sources, including car batteries. The chassis is designed to keep the motherboard cool at temperatures as high as 45 degree Celsius, and resistant to humidity levels of 70-85 RH (relative humidity). The total power consumption of all the peripherals is less than 100 watts. The platform comes installed with a certificate-based access, allowing banks to verify the validity of instalment payments against the purchase of the PC.

For manufacturing of these ruggedized PCs, Intel has entered into an agreement with HCL Infosystems. HCL has a considerable experience for designing personal computers for the Indian market (an important business deal was with the State Band of India, which catapulted HCL into the top tier). It aims to leverage this expertise along with advanced know-how and components from Intel to produce this ruggedized PC. Intel in turn, stands to benefit as well from this transaction as it aims to introduce such PCs in other markets as well.

Wintel Effect

• One of the most important partnerships in the global computer industry is that of Intel and Microsoft. Cheap PCs using processors (CPUs) from Intel, coupled with operating system (OS) software from Microsoft, have defined low–cost computation for most people. The partnership was dubbed `Wintel’ — Windows from Microsoft, on computers with CPUs from Intel.
• Through the 1980s and the 1990s, the Wintel partnership worked smoothly. Intel had the highest volumes of production of CPUs, and PCs were ubiquitous low–cost computers. In order to use PCs, there was no alternative but OSes from Microsoft. Microsoft kept releasing slower software, forcing users to require faster CPUs. As long as Windows worked only on Intel processors, Intel had an interest in supporting Microsoft. As long as non-Microsoft OSes did not run on Intel CPUs, Microsoft had an interest in supporting Intel. Anyone who chose one of Wintel tended to use the other.

Apple dumps IBM microprocessor for Intel (2005, San Francisco Chronicle)

• Intel’s microprocessor development roadmap promises features like more efficient power consumption that Apple did not foresee in similar plans for the IBM PowerPC processor.
• We are thrilled to have the world’s most innovative personal computer company as a customer,” said Paul Otellini, president and CEO of Intel, said in a statement. “Apple helped found the PC industry and throughout the years has been known for fresh ideas and new approaches.

AMD

AMD marked its transition into advanced 65-nm process technology with the launch of Athlon 64 X2 dual core desktop processors, which uses less power and gives better overall performance.
AMD has entered into a contract with Sahara Computers and Electronics Limited (SCEL), a joint venture between Sahara India Pariwar and Sahara South Africa, to build and sell a range of Sahara-branded computers based on AMD processors in the Indian market.
Sahara is a household name in India and combined with the consistently improving brand image of AMD, it hopes to make a successful entry into the Indian computer market.
Sun Microsystems has expanded its industry-standard comprehensive product line based on Solaris x86 OS and the AMD Opteron processor, and has announced the Sun Fire V20z Server Enterprise Essentials Promotion that can help dramatically reduce customers’ total cost of acquisition over three years.
What AMD does??

• AMD utilizes strategic industry partnerships to further its business interests as well as to tackle Intel’s dominance and resources
• AMD also formed a strategic partnership with IBM, under which AMD gained silicon on insulator (SOI) manufacturing technology, and detailed advice on 90 nm implementation, the partnership was announced by AMD to be extended to 2011 for 32 nm and 22 nm fabrication related technologies. Further, AMD is loosely partnered with end-user companies such as HP, Compaq, ASUS, Alienware, Acer, Evesham Technology, Dell and several others to facilitate processor distribution and sales.
Computer System vendors:
Apple:

In the middle 1980s Apple Computer’s strategy was focused on developing desktop publishing as a competitive advantage. The Macintosh was the first computer to integrate laser printing and page layout at popular prices, and Apple had a huge advantage. However, it took several years to make people understand what desktop publishing was, and by the time the message was clear Apple’s managers were tired of it. So while the strategy was desktop publishing the managers focused on multimedia and personal digital assistants instead. Budgeted marketing activities didn’t focus nearly as much on desktop publishing as the strategy dictated.
That was a lack of strategic alignment that failed to support and implement the desired strategy.
Apple Computer Inc. generates buzz for its new products by obsessively enforcing a strict secrecy policy. The mystery helps Apple attract crowds at its retail stores and generally garner much more visibility than its relatively modest advertising budget would suggest. Apple spent $287 million on advertising last fiscal year, compared with $995 million for Microsoft and $1.1 billion for H-P, according to the companies’ filings with securities regulators. While new wares from Dell Inc. or H-P rarely get front-page treatment, Mr. Jobs has repeatedly appeared on the covers of Time, Newsweek and Fortune showing off a new iPod or Macintosh computer.

Said another way, Apple achieves visibility and coverage worth at least $600 to $700 million a year from its tight-lipped ways, all because it doesn’t pre-announce.
Every Mac uses a chip based on Intel Core technology, the next generation in processor design from the world’s leading chip maker.

HP:
HP has transformed its organization to be more customer centric by focusing on three things:
1. Integrating the customer to drive the business.
2. Measuring and managing what matters to the customer.
3. Inspiring employees to drive customer centricity.
These themes weave their way through all of today’s presentations, but HP’s added challenge of executing them in a B2B context shows that customer centricity is possible for all types of marketing organizations. They recognized a relationship between customer loyalty and business results, measured how they evolved over time, and focused investments on what mattered to customers. In addition to the relationship between customer loyalty and business results, HP also found a relationship with their sales partners and loyalty, so they established a closed-loop process to deal with customer feedback. And they inspired employees by training all of them and building programs that allowed them to more easily share the customer feedback they received.
The focus on customers has paid dividends for HP. In 2003, customer loyalty scores were abysmal and there were threats to sell HP’s PC business. In Q3 06, employee passion for the customer, an HP-specific measure, increased 15% and both customer satisfaction and PC market share were #1.
ACER:
DELL:
LENOVO:
HCL:
SAHARA(NEW ENTRANT):

Future trends
Google Inc and Intel Corporation are leading a coalition of technology businesses and environmental groups to help conserve electricity and curb global warming emissions by making the computers and servers more energy efficient.
The environment-friendly computing initiative, organised by the two companies, has set ambitious industry targets to increase the energy efficiency of computing gear over the next four years.
The target aims to cut by half the amount of electricity computers consume by using existing power-saving technologies by 2010. Currently, the average PC wastes about half of the power it consumes, while the average server wastes about one-third.
Pat Gelsinger, senior vice president for Intel’s digital enterprise group, said, “Let’s create a more efficient IT industry by driving up the efficiency of computers. We think we can have huge savings in terms of carbon footprint and energy costs.”
The initiative hopes to achieve savings of over $5.5 billion in electricity costs by 2010 and reduce annual greenhouse gas emissions of 54 million tons that contribute to climate change.

0

Biology is the science of living systems. It is inherently interdisciplinary, requiring knowledge of the physical sciences and mathematics, although specialities may be oriented toward a group of organisms or a level of organization.

Biology is the science of living systems. It is inherently interdisciplinary, requiring knowledge of the physical sciences and mathematics, although specialities may be oriented toward a group of
organisms or a level of organization. BOTANY is
concerned with plant life, ZOOLOGY with animal
life, algology with ALGAE, MYCOLOGY with
fungi, MICROBIOLOGY with microorganisms
such as protozoa and bacteria, CYTOLOGY with
CELLS, and so on. All biological specialties,
however, are concerned with life and its
characteristics. These characteristics include
cellular organization, METABOLISM, response
to stimuli, development and growth, and
reproduction. Furthermore, the information
needed to control the expression of such
characteristics is contained within each organism.
FUNDAMENTAL DISCIPLINES Life is divided
into many levels of organization–atoms,
molecules, cells, tissues, organs, organ systems,
organisms, and populations. The basic disciplines
of biology may study life at one or more of these
levels. Taxonomy attempts to arrange organisms in
natural groups based on common features. It is
concerned with the identification, naming, and
classification of organisms. The seven major
taxonomic categories, or taxa, used in
classification are kingdom, phylum, class, order,
family, genus, and species. Early systems used
only two kingdoms, plant and animal, whereas
most modern systems use five: MONERA
(BACTERIA and BLUE-GREEN ALGAE),
PROTISTA (PROTOZOA and the other
ALGAE), FUNGI, PLANT, and ANIMAL. The
discipline of ECOLOGY is concerned with the
interrelationships of organisms, both among
themselves and between them and their
environment. Studies of the energy flow through
communities of organisms and of the environment
(the ecosystem approach) are especially valuable
in assessing the effects of human activities. An
ecologist must be knowledgeable in other
disciplines of biology. Organisms respond to
stimuli from other organisms and from the
environment; behaviorists are concerned with
these responses. Most of them study animals–as
individuals, groups, or entire species–in describing
ANIMAL BEHAVIOR patterns. These patterns
include ANIMAL MIGRATION, courtship and
mating, social organization, TERRITORIALITY,
INSTINCT, and learning. When humans are
included, biology overlaps with psychology and
sociology. Growth and orientation responses of
plants can also be studied in the discipline of
behavior, although they are traditionally
considered as belonging under development and
PHYSIOLOGY, respectively. Descriptive and
comparative EMBRYOLOGY are the classic
areas of DEVELOPMENT studies, although
postembryological development, particularly the
aging process, is also examined. The biochemical
and biophysical mechanisms that control normal
development are of particular interest when they
are related to birth defects, cancer, and other
abnormalities. Inheritance of physical and
biochemical characteristics, and the variations that
appear from generation to generation, are the
general subjects of GENETICS. The emphasis
may be on improving domestic plants and animals
through controlled breeding, or it may be on the
more fundamental questions of molecular and
cellular mechanisms of HEREDITY. A branch of
biology growing in importance since the 1940s,
molecular biology essentially developed out of
genetics and biochemistry. It seeks to explain
biological events by studying the molecules within
cells, with a special emphasis on the molecular
basis of genetics–nucleic acids in particular–and
its relationship to energy cycling and replication.
Evolution, including the appearance of new
species, the modification of existing species, and
the characteristics of extinct ones, is based on
genetic principles. Information about the structure
and distribution of fossils that is provided by
paleontologists is essential to understanding these
changes. Morphology (from the Greek, meaning
“form study”) traditionally has examined the
ANATOMY of all organisms. The middle levels
of biological organization–cells, tissues, and
organs, are the usual topics–with comparisons
drawn among organisms to help establish
taxonomic and evolutionary relationships. As
important as the form of an organism are its
functions. Physiology is concerned with the life
processes of entire organisms as well as those of
cells, tissues, and organs. Metabolism and
hormonal controls are some of the special interests
of this discipline. HISTORY OF BIOLOGY
Origin and Early Development. The oldest
surviving archaeological records that indicate some
rudimentary human knowledge of biological
principles date from the Mesolithic Period. During
the NEOLITHIC PERIOD, which began almost
10,000 years ago, various human groups
developed agriculture and the medicinal use of
plants. In ancient Egypt, for example, a number of
herbs were being used medicinally and for
embalming. Early Development As a science,
however, biology did not develop until the last few
centuries BC. Although HIPPOCRATES, known
as the father of medicine, influenced the
development of medicine apart from its role in
religion, it was ARISTOTLE, a student of Plato,
who established observation and analysis as the
basic tools of biology. Of particular importance
were Aristotle’s observations of reproduction and
his concepts for a classification system. As the
center of learning shifted from Greece to Rome
and then to Alexandria, so did the study of
biology. From the 3d century BC to the 2d
century AD, studies primarily focused on
agriculture and medicine. The Arabs dominated
the study of biology during the Middle Ages and
applied their knowledge of the Greeks’ discoveries
to medicine. The Renaissance was a period of
rapid advances, especially in Italy, France, and
Spain, where Greek culture was being
rediscovered. In the 15th and 16th centuries,
Leonardo da Vinci and Michelangelo became
skilled anatomists through their search for
perfection in art. Andreas VESALIUS initiated the
use of dissection as a teaching aid. His books,
Fabrica (1543) and Fabrica, 2d ed. (1550),
contained detailed anatomical illustrations that
became standards. In the 17th century, William
HARVEY introduced the use of experimentation
in his studies of the human circulatory system. His
work marked the beginning of mammalian
physiology. Scientific Societies and Journals. Lack
of communication was a problem for early
biologists. To overcome this, scientific societies
were organized. The first were in Europe,
beginning with the Academy of the Lynx (Rome,
1603). The Boston Philosophical Society, founded
in 1683, was probably the first such society to be
organized in colonial America. Later, specialized
groups, principally of physicians, organized
themselves, among them the American Association
for the Advancement of Science (AAAS),
founded in 1848. Much later, in 1951, the
American Institute of Biological Science (AIBS)
was formed as an alliance of the major biological
societies in the United States. The first journals to
present scientific discoveries were published in
Europe starting in 1665; they were the Journal des
Savants, in France, and Philosophical Transactions
of the Royal Society, in London. Over the years,
numerous other journals have been established, so
that today nearly all societies record their
transactions and discoveries. Development and
Early Use of the Microscope. Before 1300 optical
lenses were unknown. At that time, except for
crude spectacles used for reading. Modern optics
began with the invention of the MICROSCOPE
by Galileo Galilei about 1610. Microscopy
originated in 1625 when the Italian Francesco
Stelluti published his drawings of a honeybee
magnified 10 times. The 17th century produced
five microscopists whose works are considered
classics: Marcello MALPIGHI (Italy), Antoni van
LEEUWENHOEK and Jan SWAMMERDAM
(Holland), and Robert HOOKE and Nehemiah
GREW (England). Notable among their
achievements were Malpighi’s description of lung
capillaries and kidney corpuscles and Hooke’s
Micrographia, in which the term cell was first
used. Basis for Modern Systematics. Consistent
terminology and nomenclature were unknown in
early biological studies, although Aristotle regularly
described organisms by genos and eidoes (genus
and species). Sir Isaac NEWTON’s Principia
(1687) describes a rigid universe with an equally
rigid classification system. This was a typical
approach of the period. The leading botanical
classification was that used in describing the
medicinal values of plants. Modern nomenclature
based on a practical binomial system originated
with Karl von Linne (Latinized to Carolus
LINNAEUS). In addition to arranging plants and
animals into genus and species based on structure,
he introduced the categories of class and order.
Jean Baptiste LAMARCK based his system on
function, since this accommodated his view of the
inheritance of acquired characteristics. In 1817,
Georges, Baron CUVIER became the first to
divide the entire animal kingdom into subgroups,
for example, Vertebrata, Mollusca, Articulata, and
Radiata. Explorations and Explorers. During the
18th and 19th centuries numerous important
biological expeditions were organized. Three of
these, all British, made outstanding contributions to
biology. Sir Joseph BANKS, on Captain Cook’s
ship Endeavor, explored (1768-71) the South
Seas, collecting plants and animals of Australia.
Robert BROWN, a student of Banks, visited
Australia from 1801 to 1805 on the Investigator
and returned with more than 4,000 plant
specimens. On perhaps the most famous voyage,
Charles DARWIN circumnavigated (1831-36)
the globe on the Beagle. His observations of birds,
reptiles, and flowering plants in the Galapagos
Islands in 1835 laid the foundation for his theories
on evolution, later published in On the Origin of
Species (1859). The Discovery of
Microorganisms. Arguments about the
spontaneous generation of organisms had been
going on since the time of Aristotle, and various
inconclusive experiments had been conducted.
Louis PASTEUR clearly demonstrated in 1864
that no organisms emerged from his heat-sterilized
growth medium as long as the medium remained in
sealed flasks, thereby disproving spontaneous
generation. Based on Edward JENNER’s studies
of smallpox, Pasteur later developed a vaccine for
anthrax and in 1885 became the first to
successfully treat a human bitten by a rabid dog.
Beginning in 1876, Robert KOCH developed
pure-culture techniques for microorganisms. His
work verified the germ theory of disease. One of
his students, Paul EHRLICH, developed
chemotherapy and in 1909 devised a chemical
cure for syphilis. The value of ANTIBIOTICS
became evident when Sir Alexander FLEMING
discovered penicillin in 1928. An intensive search,
between 1940 and 1960, for other antibiotics
resulted in the development of several dozen that
were used extensively. Although antibiotics have
not been the panacea once anticipated, their use
has resulted in a decreased incidence of most
infectious diseases. The Role of the Cell.
Following Hooke’s use of the term cell, biologists
gradually came to recognize this unit as common
throughout living systems. The cell theory was
published in 1839 by Matthias Schleiden a plant
anatomist. Schleiden saw cells as the basic unit of
organization and perceived each as having a
double life, one “pertaining to its own
development” and the other “as an integral part of
a plant.” Schwann, an animal histologist, noticed
that not all parts of an organism are comprised of
cells. He added to the theory in 1840 by
establishing that these parts are at least “cell
products.” Between 1868 and 1898 the cell
theory was enlarged as substructures of the
cell–for example, plastids and
mitochondria–were observed and described.
Basic Life Functions. Until the 17th century it was
believed that plants took in food, preformed, from
the soil. Jan Baptista van HELMONT, the first
experimental physiologist, around 1640 concluded
that water is the only soil component required for
plant growth. Stephen HALES showed (1727)
that air held the additional ingredient for food
synthesis. In 1779, Ingenhousz identified this as
carbon dioxide. The study of
PHOTOSYNTHESIS began with a
demonstration by Sachs and Pringsheim in the
mid-19th century that light is the energy source of
green plants. Blackman showed (1905) that not all
parts of this process require sunlight. Results of
work done during the 1920s and ’30s proved that
chloroplasts produce oxygen. Subsequently, it was
shown that the light-dependent reactions cause
two types of high-energy molecules to be formed
that use the energy from light. The route of carbon
dioxide in photosynthesis was worked out by
Melvin CALVIN in the early 1950s, using the
radioisotope carbon-14. His results proved
Blackman correct: there exist two distinct but
closely coordinated sets of chloroplast reactions,
one light-dependent and the other
light-independent. High-energy products of the
light-dependent reactions are required for
incorporation of carbon dioxide into sugars in the
light-independent reactions. The earliest
demonstration of ferments (the word ENZYME
was not coined until 1878) in pancreatic juice was
made by Claude BERNARD in France. Bernard
also experimentally determined numerous functions
of the liver as well as the influence of vasomotor
nerves on blood pressure. In the 1930s, Otto
WARBURG discovered a series of cellular
enzymes that start the process of glucose
breakdown to produce energy for biological
activity. When Hans KREBS demonstrated
(1950s) an additional series of enzyme reactions
(the citric acid cycle) that completes the oxidation
process, the general respiration scheme of cells
became known. Chemical synchronization of body
functions without direct control by the nervous
system was discovered in 1905 by Sir William M.
BAYLISS and Ernest Henry STARLING (the
first to use the term hormone). Steroids were
discovered in 1935. Continuity in Living Systems.
The early biologists known as preformationists
believed that animals exist preformed, either in
sperm (the animalculist’s view) or in the egg (the
ovist’s belief). Embryology actually began when
Karl Ernst von BAER, using the microscope,
observed that no preformed embryos exist.
Modern interpretations of developmental control
in embryogenesis can be traced to Hans
SPEMANN’s discovery in 1915 of an “organizer”
area in frog embryos. More recent research has
shown the importance of other factors, such as
chemical gradients. Genetics, the study of heredity,
began with the work of Gregor Johann MENDEL,
who published his findings in 1866. Mendel’s
extensive experiments with garden peas led him to
conclude that the inheritance of each characteristic
is controlled by a pair of physical units, or genes.
These units, one from each parent (the law of
segregation), were passed on to offspring,
apparently independent of the distribution of any
other pairs (the law of independent assortment).
The gene concept was amplified by the
rediscovery and confirmation of Mendel’s work in
1900 by Hugo DE VRIES in Holland, Karl Erich
Correns in Germany, and Gustav Tschermak von
Seysenegg in Austria. De Vries’s mutation theory
became the foundation of modern genetics. The
chromosome theory is based on the speculations
of Pierre Paul ROUX in 1883 that cell nuclei
contain linear arrangements of beadlike
components which replicate (produce exact
copies) during cell division. Many important
contributions were made early in the 20th century
by the American Thomas Hunt MORGAN. These
included sex-linked inheritance and the association
with gene theory of the crossing over of
chromosomes. The discovery by Geoffrey Hardy
and William Weinberg of the equilibrium
relationship that exists between frequency of
alleles (a term originated by William Bateson in
1909 for alternate forms of a gene) in a population
led to formulation of the law bearing their names.
The role of genetics in evolution was publicized in
1937 by Theodosius DOBZHANSKY’s Genetics
and the Origin of Species. Molecular biology, the
most recent branch of biology, began early in the
20th century with Archibald Garrod’s work on the
biochemical genetics of various diseases. The
concept of one gene producing one enzyme was
established in 1941 by George W. BEADLE and
Edward L. TATUM. The work on protein
synthesis by Jacques MONOD and Francois
JACOB and others in 1961 has modified the one
gene-one enzyme concept to one gene-one
protein. Essential to the understanding of protein
synthesis were the advances made in the 1940s
and ’50s in understanding the role and structure of
nucleic acids. The structural model proposed in
1953 by James D. WATSON and F. H. C.
CRICK is a landmark in biology. It has given
biologists a feasible way to explain the storage and
precise transmission of genetic information from
one generation to the next. Knowledge of
biological processes at the molecular level has also
enabled scientists to develop techniques for the
direct manipulation of genetic information, a field
now called GENETIC ENGINEERING. UNITY
OF LIVING SYSTEMS Despite the astounding
diversity of organisms that have been discovered,
an equally astounding degree of unity of structure
and function has been discerned. The structure of
flagella is essentially the same in all cells having
nuclei. The molecules involved in growth and
metabolism are remarkably similar, and often they
are constructed of identical subunits. Furthermore,
enzymes, the catalysts of biological chemistry, are
now known to act similarly in all organisms.
Phenomena such as cell division and the
transmission of the genetic code also appear to be
universal. Larry A. Giesmann

0

This is a religious song sung by the black people in the southern part of the US and are often influenced by African melodies. The spirituals are typical working songs and often content stories and persons from the Bible. Many of the slaves, in fact, thought of themselves as modern children of Israel who were looking for freedom. The songs first become well-known outside the southern states when the slaves were set free from slavery.

African American Culture

Music

Spirituals
This is a religious song sung by the black people in the southern part of the US and are often influenced by African melodies. The spirituals are typical working songs and often content stories and persons from the Bible. Many of the slaves, in fact, thought of themselves as modern children of Israel who were looking for freedom. The songs first become well-known outside the southern states when the slaves were set free from slavery.

Blues
The blues is extremely various type of music, and it has many different musical expressions. The musicians often created an individual style of blues when they performed. It has also given a lot to the development to jazz and it’s not rare that jazz musicians bring an element of blues into their music. In addition to this, some of the classical, and many rock, folk and country music compositions also show traces of blues.

The blues lyrics are well-known for their reflection on loneliness and sorrow, but humorous reactions to life’s trouble is also common.

Blues probably developed after the Civil War from short solo calls which were called field hollers. These field hollers were used as communication among the black workers on the plantations in the South. Later, a “down-home” blues developed from this into the blues we know today.

When the blues became more popular in the early 1900’s, W.C. Handy began to perform blues songs in public. Bessie Smith, of the 1920’s, is counted one of the most talented blues singers, and she and other famous singers, helped the blues reach a larger audience.

Jazz
The history of jazz began on the late 19th century and it was influenced by black American music, African rhythms and European harmonies.

One of the most important factors in jazz is improvisation, to create a song impulsively. This is a skill held high of the characteristic jazz musician. The musician isn’t just a performer, he is a composer too, and this is what makes every performance of jazz different.

Syncopation is another key word in jazz, the musicians break up the regular patterns; they make them uneven and mix the parts of the song in unexpected ways.

In the beginning the jazz was preformed by black Americans who had little experience in playing western music. Later, as the popularity grew, the sound was influenced by musicians with other backgrounds, like classical or formal. The development of new instruments and different techniques has also done a great deal for the sound of jazz.

Rock and roll
Rock is one of the most popular music types, and it comes in many different shapes.

From its origin, in the 1950’s, rock and roll was party music that appealed to the youth. It celebrated the young, and described all the ups and downs, joys and problem of this period.

Many parents dismissed rock as something inappropriate and a threat to society at this time. But by the 60’s, rock and roll had earned much more respect, also from the parent generation. By the end of this decade the music had moved away from its root in the blues and country and the next decade rock music became more popular than every and it influenced every bit of popular culture from films to fashion. But as the rock became more accepted it lost much of its rebelliousness which had originally given it its power with the youth.

The roots of the rock music can be found in the blues’ lyric and guitars and in the spirit of traditional country music, also some parts of jazz and pop music can be heard in the rock sound.

Chuck Berry was the first great rock and roll artist. His feelings and youth problems are expressed in his lyrics and he has become a major influence on later rock performers, f.ex. The Beatles and the Rolling Stones. Little Richard is another great influence in Rock and roll, especially his performance styles. His energetic and colourful stage performance was a model for performers who followed.

In rock and roll the racial differences in the US was erased. If featured black artists, as Chuck Berry, who were influenced by white musicians, and vice versa with Presley and Buddy Holly, who adopted styles based on rhythm and blues. With the rise of rock and roll, black artists appealed to both black and white audiences.

Rap
The most popular new music genre from the 80’s and 90’s was the rap music. It is generally spoken fast rather than sung and is performed with a rhythm rather than melody.

Rap first developed in the 70’s in New York and spread fast in urban areas, mostly among African American teenagers. After this it was spread all over USA, and many people believed that rap would replace rock, but the rap song lyrics cause controversy. The lyrics often promote racism, violence and discrimination towards women.

Rap music’s greatest inspiration came from DJs in Jamaica. They talked or toasted over the record they played in the clubs. In addition to this, a Jamaican born DJ is often said to be the one who introduced Rap to New York.
The earlier rap had more party spirit, but later more serious rap who took a look at social issues among black people became popular. The acts Public Enemy and Ice Cube have made these radical forms for rap more well-known. The style gangster rap has also become well-liked the later years.

Famous rappers today are Dr. Dre, Beastie Boys and Eminem.

Literature
Famous African American writers are late 18th century writers as Phillis Wheatly and Olaudah Wquiano to more modern authors as Toni Morrison, Maya Angelou and Walter Mosely, who is being ranked among the top writers in the USA. It is popular to write about the role of the African American in the American society, and within these topics like racism, slavery and freedom.

The literature has, like the people, changed over the centuries. Before the Civil war, the focus was mostly the slavery. In the beginning of the 20th century books started to confront the racist attitude towards the African Americans. Later many authors wrote about segregation and Black Nationalism, especially during the Civil Rights Movement of the 60’s.

Toni Morrison was born in February 1931 in Ohio and she is one of the best authors in the world, she has also won the Nobel Prize in Literature. Her best-known books are The Bluest Eye, Beloved and Song for Solomon. What characterize Morrison’s writing is that the story’s have epic themes and well-described African American characters.

Maya Angelou was born in April 1928 and she is an American poet, she also had an important role in the Civil Rights Movement.
Angelou is particularly known for her autobiographical writing, her poetry and collections of verse. She was the second person who ever was requested to read her poem to a US president.
She has been honored several times by different academic institutions such as Yale University, Rockefeller Foundation and University of Ghana. She has also been recognized for her achivements in music and theater.

 

0

According to the Generally Accepted Accounting Principles, T-Shirts by Tommy can account for the accident is to record an extraordinary item. Using the definition from our Intermediate Accounting textbook, extraordinary events are defined as, “…events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence” (Keiso). Because of the nature of the plane crash, and the fact that these types of accidents happen very rarely, it can definitely be categorized as extraordinary. Tommy needs to estimate how much to expense for the loss of the building and other losses associated with the crash. Then he must record this item on his yearly income statement.

According to the Generally Accepted Accounting Principles, T-Shirts by Tommy can account for the accident is to record an extraordinary item. Using the definition from our Intermediate Accounting textbook, extraordinary events are defined as, “…events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence” (Keiso). Because of the nature of the plane crash, and the fact that these types of accidents happen very rarely, it can definitely be categorized as extraordinary. Tommy needs to estimate how much to expense for the loss of the building and other losses associated with the crash. Then he must record this item on his yearly income statement.
If Tommy’s business was not going to be operating soon at another location the smart thing to do would be to end the lease so that they would no longer have to pay for the equipment. Tommy, however, has a location where he can be operating shortly so he should consider not recording lease expense on the equipment during its downtime, and distributing it to the rest of the year evenly. It would not make sense to maintain the same lease expense during which time the equipment is not generating revenue; doing so would violate the matching principle. The best way to do this is to allocate the depreciation for the equipment to later periods when the equipment will be up and running. For instance, if we had a $1000 expense each month for equipment depreciation, for the 3 months and 2 weeks the machines will be down, we would readjust the $3500 to the remaining time of our lease. If there were 10 months on the lease after that time, we could add $350 to each of the remaining months.
The situation that Tommy finds himself in is unfortunate, but yet the effects could have been reduced if he had taken a few precautions, in case of an unexpected event, occurred. The first precaution that Tommy could have taken was to produce T-shirts the whole year, not to just increase production before spring break occurs. If he had lots of extra shirts in stock for spring breakers, the week that he will not be able to produce t-shirt because of the crash would not economically affect his business as much because he will still have many shirts to sell. By waiting until the push of spring break, he has greatly increased the economic effect on his business because he will be even farther behind schedule when he can start production again, and it is possible that he will not have the supply of t-shirts to meet the demand of spring break t-shirt consumers.
Second, as a small business owner, you should think about having insurance to protect yourself against events such as the one that occurred. Although, the equipment was not damaged, the building did have structural damage which if Tommy has no insurance on, will be taken as a loss. If he does have insurance, he can be reimbursed in a short time for that damage which can be put towards purchasing or renting a new space. Although Tommy, being a small business owner, may have fire and inclement weather insurance coverage, another insurance that is also used by business owners is called business interruption insurance. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. It also incorporates a 48 hour waiting period after the disaster occurs, which gives your company some time to recuperate. Another add-on that Tommy could get for his insurance is extra expense insurance. Extra expense insurance reimburses you for some of the money you spend to recover from the accident which helps you from having to close down the business during the time of recovery (Insurance Information Institute, paragraphs 1-6).
For the September 11 attacks, the EITF classified most of the damage not as an extraordinary event but rather to be accounted for under continuing operations. They reached this decision because they felt that terrorist attacks did not fall under the category of extraordinary events because they had happened in previous years (FASB, Pg. 5, para. 2). For this particular event, however; the accounting impact on Tommy’s financial statements is that Tommy would categorize this as an extraordinary event on his company’s income statement. He can make this assumption because it states clearly that it was a “combination of engine failure and unforeseen weather” and also it was clearly not a terrorist attack so it would not be characterized the same as the September 11 attacks were. It would directly lower his net income; net of taxes.
The precautions that Tommy could have taken to reduce the effects of this accident would change the accounting records for “T-shirts for Tommy”. First, producing more t-shirts year round rather than increasing production right before the spring break rush would affect the financial statements. The net income for quarterly statements would change because the operating expenses would be higher for the fall and winter quarters but would be less than normal for the spring and summer quarters. On the balance sheet, your depreciation on your t-shirt making equipment could be changed depending on your depreciation method. If Tommy uses straight-line depreciation the amount per month would not be affected because the amount is the same no matter how much you actually use the equipment that month. If you used the units of production method, the depreciation would be higher during the spring and summer months for your equipment, although if Tommy decided to produce the same amount of t-shirts year round, the depreciation per month would be very close to what it was when you use the straight-line depreciation method (Petroff, para. 5).
The accounting impact on the second precaution of getting insurance for your business along with the add-ons that includes business interruption and extra expense would change the outcome of your balance sheet. Tommy would have to make adjusting entries every time you prepared your financial statements for prepaid insurance (considering it was prepaid). This would directly affect your net income, decreasing it, because it would increase your expenses with an outflow of cash in exchange for protection from events like this one in this example.
If Tommy’s equipment was already idle during the plan crash due to lack of demand he would treat the situation differently. T-Shirts by Tommy is posed with a delicate situation due to the fact that idle time is something hard to account for accurately. If idle time is overvalued, then cost of goods sold will be too high, and vice versa. The first thing that Mr. Short must determine is the normal overhead rate for his equipment. At what rate are normal production hours and normal expense accounted for properly? After figuring out this number, Tommy can then move onto deciding the idle capacity of his equipment.
In determining the normal overhead rate it is important to realize that normal production is not the same thing as possible production (Vollmers). In fact, confusing the two can result in major differences in cost of goods sold and net income. Once Tommy has decided the normal capacity he can use this number to determine the cost of idle equipment. Using the normal capacity as the denominator, and cost of idle equipment as the numerator, an idle rate is determined. This idle rate should be used to determine how much to expense for the time the equipment is being transported and setup at the new location. It is important to account for this idle time because the lease on the equipment does not change if it is not being used. Therefore, the time that it is not being used, it is still being paid for. In order to report this idle time, William Palmer states in his book, Construction Accounting & Financial Management, ” The easiest way to report on idle time is to account for it separately in the cost ledger as if it were a separate item of job overhead cost. The account set up is charged with the out-of-pocket costs of ownership (taxes, insurance, depreciation, and sometimes storage) for all hours…” So since we would not be using the machines during the period we could transfer depreciation to job overhead cost.
The fact that the busiest time of year for Mr. Short is fast approaching should also be taken into account. Employees are working overtime, and inevitably the equipment would have been doing the same had the accident not occurred. This factor should be accounted for by inflating the normal capacity to the same level it has been in past years during the spring break season. If this accident had occurred in the winter months, it would have made sense to deflate the capacity, because the company is not operating at full capacity.

0

The ideal mixture of debt and equity for a firm—its optimal capital structure—is the one that maximizes the value of the firm and minimizes the overall cost of capital. If we ignore taxes, financial distress costs, and any other imperfections, we find that there is no ideal mixture. Under these circumstances, the firm’s capital structure is simply irrelevant. If we consider the effect of corporate taxes, we find that capital structure matters a great deal. This conclusion is based on the fact that interest is tax deductible and thus generates a valuable tax shield. Unfortunately, we also find that the optimal capital structure is 100 percent debt, which is not something we observe in healthy firms. We next introduce costs associated with bankruptcy, or, more generally, financial distress. These costs reduce the attractiveness of debt financing. We conclude that an optimal capital structure exists when the net tax saving from an additional dollar in interest just equals the increase in expected financial distress costs. This is the essence of the static theory of capital structure.

SUMMARY AND CONCLUSIONS
The ideal mixture of debt and equity for a firm—its optimal capital structure—is the one
that maximizes the value of the firm and minimizes the overall cost of capital. If we ignore
taxes, financial distress costs, and any other imperfections, we find that there is no
ideal mixture. Under these circumstances, the firm’s capital structure is simply irrelevant.
If we consider the effect of corporate taxes, we find that capital structure matters a
great deal. This conclusion is based on the fact that interest is tax deductible and thus
generates a valuable tax shield. Unfortunately, we also find that the optimal capital
structure is 100 percent debt, which is not something we observe in healthy firms.
We next introduce costs associated with bankruptcy, or, more generally, financial distress.
These costs reduce the attractiveness of debt financing. We conclude that an optimal
capital structure exists when the net tax saving from an additional dollar in interest
just equals the increase in expected financial distress costs. This is the essence of the static
theory of capital structure.
When we examine actual capital structures, we find two regularities. First, firms in
the United States typically do not use great amounts of debt, but they pay substantial
taxes. This suggests that there is a limit to the use of debt financing to generate tax
shields. Second, firms in similar industries tend to have similar capital structures, suggesting
that the nature of their assets and operations is an important determinant of capital
structure.
17.1 EBIT and EPS Suppose the BDJ Corporation has decided in favor of a capital
restructuring that involves increasing its existing $80 million in debt to $125
million. The interest rate on the debt is 9 percent and is not expected to change.
The firm currently has 10 million shares outstanding, and the price per share is
$45. If the restructuring is expected to increase the ROE, what is the minimum
level for EBIT that BDJ’s management must be expecting? Ignore taxes in your
answer.
17.2 M&M Proposition II (no taxes) The Habitat Corporation has a WACC of 16
percent. Its cost of debt is 13 percent. If Habitat’s debt-equity ratio is 2, what is
its cost of equity capital? Ignore taxes in your answer.
17.3 M&M Proposition I (with corporate taxes) Gypco expects an EBIT of
$10,000 every year forever. Gypco can borrow at 7 percent. Suppose Gypco currently
has no debt and its cost of equity is 17 percent. If the corporate tax rate is
35 percent, what is the value of the firm? What will the value be if Gypco borrows
$15,000 and uses the proceeds to repurchase stock?
Chapter Rev i ew a n d S e l f – Test Problems
C O N C E P T Q U E S T I O N S
17.9a What is the APR?
17.9b What is the difference between liquidation and reorganization?
598 PART SIX Cost of Capital and Long-Term Financial Policy
17.10
17.1 To answer, we can calculate the break-even EBIT. At any EBIT above this, the
increased financial leverage will increase EPS. Under the old capital structure,
the interest bill is $80 million  .09  $7,200,000. There are 10 million shares
of stock, so, ignoring taxes, EPS is (EBIT  $7.2 million)/10 million.
Under the new capital structure, the interest expense will be $125 million 
.09  $11.25 million. Furthermore, the debt rises by $45 million. This amount
is sufficient to repurchase $45 million/$45  1 million shares of stock, leaving
9 million outstanding. EPS is thus (EBIT  $11.25 million)/9 million.
Now that we know how to calculate EPS under both scenarios, we set the two
calculations equal to each other and solve for the break-even EBIT:
(EBIT  $7.2 million)/10 million  (EBIT  $11.25 million)/9 million
EBIT  $7.2 million  1.11  (EBIT  $11.25 million)
EBIT  $47,700,000
Verify that, in either case, EPS is $4.05 when EBIT is $47.7 million.
17.2 According to M&M Proposition II (no taxes), the cost of equity is:
RE  RA  (RA  RD)  (D/E)
 16%  (16%  13%)  2
 22%
17.3 With no debt, Gypco’s WACC is 17 percent. This is also the unlevered cost of
capital. The aftertax cash flow is $10,000  (1  .35)  $6,500, so the value is
just VU  $6,500/.17  $38,235.
After the debt issue, Gypco will be worth the original $38,235 plus the present
value of the tax shield. According to M&M Proposition I with taxes, the
present value of the tax shield is TC  D, or .35  $15,000  $5,250, so the firm
is worth $38,235  5,250  $43,485.
1. Business Risk versus Financial Risk Explain what is meant by business and
financial risk. Suppose Firm A has greater business risk than Firm B. Is it true
that Firm A also has a higher cost of equity capital? Explain.
2. M&M Propositions How would you answer in the following debate?
Q: Isn’t it true that the riskiness of a firm’s equity will rise if the firm increases
its use of debt financing?
A: Yes, that’s the essence of M&M Proposition II.
Q: And isn’t it true that, as a firm increases its use of borrowing, the likelihood
of default increases, thereby increasing the risk of the firm’s debt?
A: Yes.
Q: In other words, increased borrowing increases the risk of the equity and the
debt?
A: That’s right.
Q: Well, given that the firm uses only debt and equity financing, and given that
the risks of both are increased by increased borrowing, does it not follow
Concepts Rev i e w a n d C r i t i c a l T h i n k i n g Q u e s t i o n s
Answe r s t o C h a p t e r R e v i ew a n d S e l f – Test Problems
CHAPTER 17 Financial Leverage and Capital Structure Policy 599
that increasing debt increases the overall risk of the firm and therefore decreases
the value of the firm?
A: ??
3. Optimal Capital Structure Is there an easily identifiable debt-equity ratio
that will maximize the value of a firm? Why or why not?
4. Observed Capital Structures Refer to the observed capital structures given
in Table 17.7 of the text. What do you notice about the types of industries with
respect to their average debt-equity ratios? Are certain types of industries more
likely to be highly leveraged than others? What are some possible reasons for
this observed segmentation? Do the operating results and tax history of the firms
play a role? How about their future earnings prospects? Explain.
5. Financial Leverage Why is the use of debt financing referred to as financial
“leverage”?
6. Homemade Leverage What is homemade leverage?
7. Bankruptcy and Corporate Ethics As mentioned in the text, some firms
have filed for bankruptcy because of actual or likely litigation-related losses. Is
this a proper use of the bankruptcy process?
8. Bankruptcy and Corporate Ethics Firms sometimes use the threat of a bankruptcy
filing to force creditors to renegotiate terms. Critics argue that in such
cases, the firm is using bankruptcy laws “as a sword rather than a shield.” Is this
an ethical tactic?
9. Bankruptcy and Corporate Ethics As mentioned in the text, Continental
Airlines filed for bankruptcy, at least in part, as a means of reducing labor costs.
Whether this move was ethical, or proper, was hotly debated. Give both sides of
the argument.
10. Capital Structure Goal What is the basic goal of financial management with
regard to capital structure?
1. EBIT and Leverage Control, Inc., has no debt outstanding and a total market
value of $100,000. Earnings before interest and taxes, EBIT, are projected to be
$6,000 if economic conditions are normal. If there is strong expansion in the
economy, then EBIT will be 30 percent higher. If there is a recession, then EBIT
will be 60 percent lower. Control is considering a $40,000 debt issue with a
5 percent interest rate. The proceeds will be used to repurchase shares of stock.
There are currently 2,500 shares outstanding. Ignore taxes for this problem.
a. Calculate earnings per share, EPS, under each of the three economic scenarios
before any debt is issued. Also, calculate the percentage changes in EPS
when the economy expands or enters a recession.
b. Repeat part (a) assuming that Control goes through with recapitalization.
What do you observe?
2. EBIT, Taxes, and Leverage Repeat parts (a) and (b) in Problem 1 assuming
Control has a tax rate of 35 percent.
3. ROE and Leverage Suppose the company in Problem 1 has a market-to-book
ratio of 1.0.
Questions and Problems
600 PART SIX Cost of Capital and Long-Term Financial Policy
Basic
(Questions 1–15)
a. Calculate return on equity, ROE, under each of the three economic scenarios
before any debt is issued. Also, calculate the percentage changes in ROE for
economic expansion and recession, assuming no taxes.
b. Repeat part (a) assuming the firm goes through with the proposed recapitalization.
c. Repeat parts (a) and (b) of this problem assuming the firm has a tax rate of
35 percent.
4. Break-Even EBIT Linkin Park Corporation is comparing two different capital
structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under
Plan I, Linkin Park would have 100,000 shares of stock outstanding. Under
Plan II, there would be 50,000 shares of stock outstanding and $1.5 million in
debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.
a. If EBIT is $200,000, which plan will result in the higher EPS?
b. If EBIT is $700,000, which plan will result in the higher EPS?
c. What is the break-even EBIT?
5. M&M and Stock Value In Problem 4, use M&M Proposition I to find the
price per share of equity under each of the two proposed plans. What is the value
of the firm?
6. Break-Even EBIT and Leverage Taylor Corp. is comparing two different
capital structures. Plan I would result in 800 shares of stock and $9,000 in debt.
Plan II would result in 700 shares of stock and $13,500 in debt. The interest rate
on the debt is 10 percent.
a. Ignoring taxes, compare both of these plans to an all-equity plan assuming
that EBIT will be $8,000. The all-equity plan would result in 1,000 shares of
stock outstanding. Which of the three plans has the highest EPS? The lowest?
b. In part (a), what are the break-even levels of EBIT for each plan as compared
to that for an all-equity plan? Is one higher than the other? Why?
c. Ignoring taxes, when will EPS be identical for Plans I and II?
d. Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 40
percent. Are the break-even levels of EBIT different from before? Why or
why not?
7. Leverage and Stock Value Ignoring taxes in Problem 6, what is the price per
share of equity under Plan I? Plan II? What principle is illustrated by your
answers?
8. Homemade Leverage Zombie, Inc., a prominent consumer products firm, is
debating whether or not to convert its all-equity capital structure to one that is 40
percent debt. Currently, there are 1,000 shares outstanding and the price per
share is $70. EBIT is expected to remain at $7,000 per year forever. The interest
rate on new debt is 7 percent, and there are no taxes.
a. Ms. Spears, a shareholder of the firm, owns 100 shares of stock. What is her
cash flow under the current capital structure, assuming the firm has a dividend
payout rate of 100 percent?
b. What will Ms. Spears’s cash flow be under the proposed capital structure of
the firm? Assume that she keeps all 100 of her shares.
c. Suppose Zombie does convert, but Ms. Spears prefers the current all-equity
capital structure. Show how she could unlever her shares of stock to recreate
the original capital structure.
d. Using your answer to part (c), explain why Zombie’s choice of capital structure
is irrelevant.
CHAPTER 17 Financial Leverage and Capital Structure Policy 601
Basic
(continued )
9. Homemade Leverage and WACC ABC Co. and XYZ Co. are identical firms
in all respects except for their capital structure. ABC is all-equity financed with
$600,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth
$300,000 and the interest rate on its debt is 10 percent. Both firms expect EBIT
to be $85,000. Ignore taxes.
a. Ms. Aaliyah owns $45,000 worth of XYZ’s stock. What rate of return is she
expecting?
b. Show how Ms. Aaliyah could generate exactly the same cash flows and rate
of return by investing in ABC and using homemade leverage.
c. What is the cost of equity for ABC? What is it for XYZ?
d. What is the WACC for ABC? For XYZ? What principle have you illustrated?
10. M&M J Lo Corp. uses no debt. The weighted average cost of capital is 14 percent.
If the current market value of the equity is $40 million and there are no
taxes, what is EBIT?
11. M&M and Taxes In the previous question, suppose the corporate tax rate is
35 percent. What is EBIT in this case? What is the WACC? Explain.
12. Calculating WACC Nopay Industries has a debt-equity ratio of 2. Its WACC
is 11 percent, and its cost of debt is 11 percent. The corporate tax rate is 35
percent.
a. What is Nopay’s cost of equity capital?
b. What is Nopay’s unlevered cost of equity capital?
c. What would the cost of equity be if the debt-equity ratio were 1.5? What if it
were 1.0? What if it were zero?
13. Calculating WACC Molly Corp. has no debt but can borrow at 9 percent. The
firm’s WACC is currently 15 percent, and the tax rate is 35 percent.
a. What is Molly’s cost of equity?
b. If the firm converts to 25 percent debt, what will its cost of equity be?
c. If the firm converts to 50 percent debt, what will its cost of equity be?
d. What is Molly’s WACC in part (b)? In part (c)?
14. M&M and Taxes Maria & Co. expects its EBIT to be $80,000 every year forever.
The firm can borrow at 14 percent. Maria currently has no debt, and its cost
of equity is 25 percent. If the tax rate is 35 percent, what is the value of the firm?
What will the value be if Maria borrows $50,000 and uses the proceeds to repurchase
shares?
15. M&M and Taxes In Problem 14, what is the cost of equity after recapitalization?
What is the WACC? What are the implications for the firm’s capital structure
decision?
16. M&M Bruin Manufacturing has an expected EBIT of $26,000 in perpetuity, a
tax rate of 35 percent, and a debt-equity ratio of .60. The firm has $60,000 in
outstanding debt at an interest rate of 8 percent, and its WACC is 12 percent.
What is the value of the firm according to M&M Proposition I with taxes?
Should Bruin change its debt-equity ratio if the goal is to maximize the value of
the firm? Explain.
17. Firm Value Bellevue Corporation expects an EBIT of $6,000 every year forever.
Bellevue currently has no debt, and its cost of equity is 16 percent. The
firm can borrow at 10 percent. If the corporate tax rate is 35 percent, what is the
value of the firm? What will the value be if Bellevue converts to 50 percent
debt? To 100 percent debt?
602 PART SIX Cost of Capital and Long-Term Financial Policy
Basic
(continued )
Intermediate
(Questions 16–17)
18. Weighted Average Cost of Capital In a world of corporate taxes only, show
that the WACC can be written as WACC  RU  [1  TC(D/V)].
19. Cost of Equity and Leverage Assuming a world of corporate taxes only,
show that the cost of equity, RE, is as given in the chapter by M&M Proposition
II with corporate taxes.
20. Business and Financial Risk Assume a firm’s debt is risk-free, so that the
cost of debt equals the risk-free rate, Rf. Define A as the firm’s asset beta, that
is, the systematic risk of the firm’s assets. Define E to be the beta of the firm’s
equity. Use the capital asset pricing model, CAPM, along with M&M Proposition
II to show that E  A  (1  D/E), where D/E is the debt-equity ratio.
Assume the tax rate is zero.
21. Stockholder Risk Suppose a firm’s business operations are such that they mirror
movements in the economy as a whole very closely, that is, the firm’s asset
beta is 1.0. Use the result of Problem 20 to find the equity beta for this firm for
debt-equity ratios of 0, 1, 5, and 20. What does this tell you about the relationship
between capital structure and shareholder risk? How is the shareholders’ required
return on equity affected? Explain.
1. Capital Structure Find the annual balance sheets for Pfizer (PFE), Ford (F),
and McDonald’s (MCD). For each company, calculate the long-term debt-toequity
ratio for the two most recent years. Why would these three companies use
such different capital structures?
17.1 Capital Structure Go to yahoo.marketguide.com and enter the ticker symbol
AMGM for Amgen, a biotechnology company. Follow the “Ratio Comparison”
link and find long-term debt-to-equity and total debt-to-equity ratios. How does
Amgen compare to the industry, sector, and S&P 500 in these areas? Now answer
the same question for Edison International (EIX), the parent company of
Southern California Edison, a utility company. How do the capital structures of
Amgen and Edison International compare? Can you think of possible explanations
for the difference between these two companies?
17.2 Capital Structure Go to www.amex.com and follow the “Screening” link.
Using the debt-to-equity screener, how many companies have debt-to-equity ratios
greater than 2? Greater than 5? Greater than 10? What company has the
highest debt-to-equity ratio? What is the ratio? Now find how many companies
have a negative debt-to-equity ratio. What is the lowest debt-to-equity ratio?
What does it mean if a company has a negative debt-to-equity ratio?
17.3 Capital Structure Go to www.amex.com and follow the “Screening” link.
Using the total assets-to-equity ratio, how many companies have a total asset-toequity
ratio greater than 5? Greater than 10? Greater than 20? What does a high
total asset-to-equity ratio imply for the debt-to-equity ratio? How many companies
have a total asset-to-equity ratio that is negative? What company has the
lowest total asset-to-equity ratio? What does a negative total asset-to-equity ratio
imply for the debt-to-equity ratio?
S&P Problem
CHAPTER 17 Financial Leverage and Capital Structure Policy 603
What’s On
the Web?
Challenge
(Questions 18–21)
17.4 Bankruptcies Go to www.abiworld.org and follow the “Bankruptcy Headlines”
link. How many companies filed for bankruptcy on this day?
Spreadsheet Templates 17–6, 17–12
604 PART SIX Cost of Capital and Long-Term Financial Policy
A B C D E F G H
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Using a spreadsheet for time value of money calculations
If we invest $25,000 at 12 percent, how long until we have $50,000? We need to solve
for the unknown of periods, so we use the formal NPER (rate, pmt, pvfv)
Present Value (pv)
Future Value (fv)
Rate (rate)
Periods:
The formal entered in cell B 10 is = NPER: notice that pmt is zero and that pv
has a negative sign on it. Also notice that rate is entered as decimal, not a percentage.
$25,000
$50,000
0.12
6.116255

0

Complete the following three exercises. Be sure to show your work for calculations to earn full credit. Sales and Production Budgets (8-12): The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

Complete the following three exercises. Be sure to show your work for calculations to earn full credit.

Sales and Production Budgets (8-12): The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced 12,000 14,000 13,000 11,000

The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be “‘uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200. The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.

Prepare the company’s sales budget and schedule of expected cash collections.

Prepare the company’s production budget for the upcoming fiscal year.

 

 

 

1)          

Jessi Corporation

Sales Budget

 

Quarter

 

1

2

3

4

Total

Budgeted Unit Sales

12,000

14,000

13,000

11,000

50,000

Selling Price per Unit

× $18

× $18 × $18 × $18 × $18
Total Sales

$216,000

$252,000

$234,000

$198,000

$900,000

 

 

 

 

Schedule of Cash Collections

 

Quarter

 

1

2

3

4

Total

Accounts Receivable, Beginning

$70,200

$70,200

Quarter 1 Sales

$140,400

$64,800

$205,200

Quarter 2 Sales

$163,800

$75,600

$239,400

Quarter 3 Sales

$152,100

$70,200

$222,300

Quarter 4 Sales

 

 

 

$128,700

$128,700

Total Cash Collections

$210,600

$228,600

$227,700

$198,900

$865,800

 

Remember that collections in the quarter of sales is 65%, therefore for the first quarter $216,000 × 65% = $140,400

In the quarter following the sale, collections are expected to be 30%, therefore $216,000 × 30% = $64,800

The rest of the calculations are done the same way

 

2)

 

Jessi Corporation

Production Budget

 

Quarter

 

1

2

3

4

Total

Budgeted Units Sales

12,000

14,000

13,000

11,000

50,000

Add: Desired Ending Inventory

2100

1950

1650

1850

1850

Total Units Needed

14,100

15,950

14,650

12,850

51,850

Less: Beginning Inventory

1,650

2,100

1,950

1,650

1,650

Required Production

12,450

13,850

12,700

11,200

50,200

 

 

 

 

Direct Materials and Direct Labor Budgets (8-13): The production department of Hareston Company has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced 7,000 8,000 6,000 5,000

In addition, the beginning raw materials inventory for the first quarter is budgeted to be 1,400 pounds and the beginning accounts payable for the first quarter is budgeted to be $2,940. Each unit requires 2 pounds of raw material that costs $1.40 per pound. Management desires to end each quarter with an inventory of raw materials equal to 10% of the following quarter’s production needs. The desired ending inventory for the fourth quarter is 1,500 pounds. Management plans to pay for 80% of raw material purchases in the quarter acquired and 20% in the following quarter. Each unit requires 0.60 direct labor-hours and direct labor-hour workers are paid $14.00 per hour.

Prepare the company’s direct materials budget and schedule of expected cash disbursements for purchases of materials for the upcoming fiscal year.

Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.

 

 

1. Hareston Company

Direct Materials Budget

 

    1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
  Required production………………………………………….. 7,000 8,000 6,000 5,000 26,000
  Raw materials per unit………………………………………..       × 2       × 2       × 2       × 2       × 2
  Production needs………………………………………………. 14,000 16,000 12,000 10,000 52,000
  Add desired ending inventory…………………………….    1,600    1,200    1,000    1,500    1,500
  Total needs………………………………………………………. 15,600 17,200 13,000 11,500 53,500
  Less beginning inventory…………………………………….    1,400    1,600    1,200    1,000    1,400
  Raw materials to be purchased…………………………….  14,200  15,600  11,800  10,500  52,100
  Cost of raw materials to be purchased at $1.40 per pound…………………………………………………………… $19,880 $21,840 $16,520 $14,700 $72,940
             
Schedule of Expected Cash Disbursements for Materials
             
  Accounts payable, beginning balance…………………… $ 2,940       $ 2,940
  1st Quarter purchases………………………………………… 15,904 $ 3,976     19,880
  2nd Quarter purchases………………………………………..   17,472 $ 4,368   21,840
  3rd Quarter purchases…………………………………………     13,216 $ 3,304 16,520
  4th Quarter purchases…………………………………………                                      11,760  11,760
  Total cash disbursements for materials…………………. $18,844 $21,448 $17,584 $15,064 $72,940

 

2. Hareston Company

Direct Labor Budget

 

    1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
  Units to be produced…………………………………….. 7,000 8,000 6,000 5,000 26,000
  Direct labor time per unit (hours)……………………..    × 0.60    × 0.60    × 0.60    × 0.60     × 0.60
  Total direct labor-hours needed………………………. 4,200 4,800 3,600 3,000 15,600
  Direct labor cost per hour……………………………….. × $14.00 × $14.00 × $14.00 × $14.00 × $14.00
  Total direct labor cost……………………………………. $ 58,800 $ 67,200 $ 50,400 $ 42,000 $218,400

 

 

Direct Labor and Manufacturing Overhead Budgets (8-14): The production department of Raredon Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced 12,000 14,000 13,000 11,000

Each unit requires 0.70 direct labor-hours, and direct labor-hour workers are paid $10.50 per hour.
In addition, the variable manufacturing overhead rate is $1.50 per direct labor-hour. The fixed
manufacturing overhead is $80,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $22,000 per quarter.

Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.

Prepare the company’s manufacturing overhead budget.

 

 

1. Raredon Corporation

Direct Labor Budget

 

    1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
  Units to be produced…………………………………….. 12,000 14,000 13,000 11,000 50,000
  Direct labor time per unit (hours)……………………..    × 0.70    × 0.70    × 0.70    × 0.70    × 0.70
  Total direct labor-hours needed………………………. 8,400 9,800 9,100 7,700 35,000
  Direct labor cost per hour……………………………….. × $10.50 × $10.50 × $10.50 × $10.50 × $10.50
  Total direct labor cost……………………………………. $ 88,200 $102,900 $ 95,550 $ 80,850 $367,500

 

2. Raredon Corporation

Manufacturing Overhead Budget

 

    1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
  Budgeted direct labor-hours…………………………… 8,400 9,800 9,100 7,700 35,000
  Variable overhead rate…………………………………… × $1.50 × $1.50 × $1.50 × $1.50  × $1.50
  Variable manufacturing overhead……………………. $12,600 $14,700 $13,650 $11,550 $ 52,500
  Fixed manufacturing overhead………………………..  80,000  80,000  80,000  80,000  320,000
  Total manufacturing overhead………………………… 92,600 94,700 93,650 91,550 372,500
  Less depreciation…………………………………………..  22,000  22,000  22,000  22,000    88,000
  Cash disbursements for manufacturing overhead. $70,600 $72,700 $71,650 $69,550 $284,500

 

0

derivatives are investment tools that can be used to hedge risk. The two most commonly used are CALLS and PUTS. A CALL is a right to buy a security at a named price and a Put is a right to sell a security at a named price.

derivatives are investment tools that can be used to hedge risk.  The two most commonly used are CALLS and PUTS.

A CALL is a right to buy a security at a named price and a Put is a right to sell a security at a named price.

For example, suppose you own 100 shares of Disney purchased for $30 a share.  Factors such as the struggling economy and terror threats have you concerned that park attendance may suffer resulting in lower profits and a decline in stock value.

Every derivative has a price.  The less likely the option will be exercised the less expensive they will be. So you (hypothetical) research available PUTS  and you may find a PUT selling for $1 a share for the right to sell at $29 and it expires in six months.

You  have now paid $3000 ($30×100) for the stock and $100 for the PUTS for a total cost of $3100.

Lets say your suspicions are right and the stock takes a dive to $20 a share for a value of $2000.  Without the PUT you would be down $1000.  But now you can sell it for $2900 and only lose $100.

A CALL would be purchased if suppose you want to buy shares of IBM and you think the new gadgets they are producing is going to cause the stock to skyrocket.  You could buy a CALL giving you lets say the option to buy at $50 and you pay $1 per share for a 100 shares.  Remember, you do not own the stock so you are out the $100.  If you are right and the price goes through the roof to $100 a share, you can now exercise the CALL and buy for $50 then turn around and sell it for $100 on the market.

There are more sophisticated uses of these options such as a STRADDLE where you may strategically buy or sell both derivatives for the same stock.

Like wise you can opt to be the seller instead of the buyer.  Selling CALLS provides much the same result as buying PUTS and visa versa.

If you sell a PUT, the buyer is paying you for the right to sell their stock at the stated price.  If their speculations about the stock movement are correct, You are obligated to buy their shares at the agreed amount.  If they were wrong about the stock movement and it becomes unprofitable to exercise the option, then it expires and you keep the premium they paid you to assume that risk.

0

Examine the rules and write a report summarizing your findings on which rule to use.

Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.
Question:
Examine the rules and write a report summarizing your findings on which rule to use.
It was a little past 9:00 on a Monday morning when Jeff Baker walked into your office with a box of donuts.
“I’ve been talking with Anne about a problem we have with short-term capacity in our pad printing operation. You know, that’s where we print the logo on the Custom lines of yo-yos. We have received more orders than usual for July, and I want to release the orders to pad printing in a way that will enable us to meet our due date commitments in the best way possible. Would you have time to look at the order list (attached) and see what kind of schedule we should follow to do that? By the way, you have established quite a reputation in your short stay here. You have a talent for really explaining why your recommendations are the best approach in a way that all of us ‘over-the-hill’ managers can understand. Please be sure to do that for me too. I want to understand why your recommendation is the best schedule and what the tradeoffs are for other possible schedules—and none of that philosophical college mumbo-jumbo. Remember, I came up through the ranks. I don’t have one of those sheepskins on my wall,” he says with a laugh.
Since your schedule was back to normal after that MRP report you did for Anne, you agreed to look at the information. After that compliment, how could you say no? “Try to get back to me within a couple of days,” Jeff said as he left your office.
After a few minutes with your old operations management text, you call the production control office to confirm the pad printing schedule. They confirm that pad printing runs on eight-hour shift per day. They tell you that due to a make-up day for flooding in June, pad printing will be running 23 days in July, beginning Friday, July 1 (they will work three Saturday on July 9, 16, and 23, and take a one-day holiday for July 4). You thank them for the information and then you begin to develop your plan.
Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
Even though Jeff lacks a college degree, from what you have seen, he is very sharp. And obviously he knows good work when he sees it since he liked, and apparently understood, your past work. You resolve to cover all the bases but in a way that is as clear as possible.
PAD PRINTING ORDER LIST
Job
Date Order Received
Set-up Time
Production Time
Due Date
A
6/4
2 hrs.
6 days
11 July
B
6/7
4 hrs.
2 days
8 July
C
6/12
2 hrs.
8 days
25 July
D
6/14
4 hrs.
3 days
19 July
E
6/15
4 hrs.
9 days
29 July
Note: Setup time is to set up the pad printer at the start of the job. Setup includes thoroughly cleaning the printing heads and ink reservoirs, installing the new pad(s) and ink supply, and carefully aligning the machine. Setup at the beginning of a new day with the same job is insignificant.
Examine the following rules and write a report to Jeff Baker summarizing your findings and advise him on which rule to use Rules: FCFS, SPT, DD, and CR.
Solution: Job Order received Set-up time(in hrs) Production time(in days) Due date A
4-Jun
2
6
11-Jul
Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
B
7-Jun
4
2
8-Jul C
12-Jun
2
8
25-Jul D
14-Jun
4
3
19-Jul E
15-Jun
4
9
29-Jul
Working Hrs= 8Hrs/ day
FCFS
The sequence is simply A-B-C-D-E. and the job starts at july 1 Job seq. Order received Processing time Processing time(in hrs) flow time(hrs) Due date Due in hrs Tardy A
4-Jun
6 days and 2 hrs
50
50
11-Jul
56
0 B
7-Jun
2 days and 4 hrs
20
70
8-Jul
40
30 C
12-Jun
8 days and 2 hrs
66
136
25-Jul
152
0 D
14-Jun
3 days and 4 hrs
28
164
19-Jul
112
52 E
15-Jun
9 days and 4 hrs
76
240
29-Jul
184
56 Total


240
660


138
Average flow time = 660/5 = 132
Average tardiness= 138/5 = 27.6
Average No. of Jobs= 660/240 = 2.75
SPT Job seq. Order received Processing time Processing time(in hrs) flow time(hrs) Due date Due in hrs Tardy B
7-Jun
2 days and 4 hrs
20
20
8-Jul
40
0 D
14-Jun
3 days and 4
28
48
19-Jul
112
0
Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
hrs A
4-Jun
6 days and 2 hrs
50
98
11-Jul
56
42 C
12-Jun
8 days and 2 hrs
66
164
25-Jul
152
12 E
15-Jun
9 days and 4 hrs
76
240
29-Jul
184
56 Total


240
570


110
Average flow time = 570/5 = 114
Average tardiness= 110/5 = 22
Average No. of Jobs= 570/240 = 2.375
EDD Job seq. Order received Processing time Processing time(in hrs) flow time(hrs) Due date Due in hrs Tardy B
7-Jun
2 days and 4 hrs
20
20
8-Jul
40
0 A
4-Jun
6 days and 2 hrs
50
70
11-Jul
56
14 D
14-Jun
3 days and 4 hrs
28
98
19-Jul
112
0 C
12-Jun
8 days and 2 hrs
66
164
25-Jul
152
12 E
15-Jun
9 days and 4 hrs
76
240
29-Jul
184
56 Total


240
592


82
Average flow time = 570/5 = 118.4
Average tardiness= 110/5 = 16.4
Average No. of Jobs= 570/240 = 2.466
CR
Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
Job seq. Processing time Due in hrs CR(calculation) CR
A
50
56
(56-0)/50=
1.12
(Lowest) B
20
40
(40-0)/20=
2
C
66
152
(152-0)/66=
2.303030303
D
28
112
(112-0)/28=
4
E
76
184
(184-0)/76=
2.421052632
At 50 hrs (a completed), the critical ratios are, Job seq. Processing time Due in hrs CR(calculation) CR
A




B
20
40
(40-50)/20=
-0.5
(Lowest) C
66
152
(152-50)/66=
1.545454545
D
28
112
(112-50)/28=
2.214285714
E
76
184
(184-50)/76=
1.763157895
At 70 hrs (a completed), the critical ratios are, Job seq. Processing time Due in hrs CR(calculation) CR
A




B




C
66
152
(152-70)/66=
1.242424242
(Lowest) D
28
112
(112-70)/28=
1.5
E
76
184
(184-70)/76=
1.5
At 136 hrs (a completed), the critical ratios are, Job seq. Processing time Due in hrs CR(calculation) CR
A




B




Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
C




D
28
112
(112-136)/28=
-0.857142857
(Lowest) E
76
184
(184-136)/76=
0.631578947
The sequence is A-B-C-D-E. Job seq. Order received Processing time Processing time(in hrs) flow time(hrs) Due date Due in hrs Tardy A
4-Jun
6 days and 2 hrs
50
50
11-Jul
56
0 B
7-Jun
2 days and 4 hrs
20
70
8-Jul
40
30 C
12-Jun
8 days and 2 hrs
66
136
25-Jul
152
0 D
14-Jun
3 days and 4 hrs
28
164
19-Jul
112
52 E
15-Jun
9 days and 4 hrs
76
240
29-Jul
184
56 Total


240
660


138
Average flow time = 660/5 = 132
Average tardiness= 138/5 = 27.6
Average No. of Jobs= 660/240 = 2.75
Comparison of All the above methods: Rule Avg. Flow time Avg. Tardiness Average No of jobs FCFS
132
27.6
2.75 SPT 114
22 2.375 EDD
118.4 16.4
2.467 CR
132
27.6
2.75
Sub: Statistics Topic: Decision Analysis
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.
From the above table we can see that SPT is superior in flowtime and Average number of time and EDD is more effective in Average tardiness. The SPT rule is addopted here because the Average flow time is least in STP. The sequence is B-D-A-C-E.
** End of the Solution **