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Submitted by rajdeep77 on Thu, 2013-10-10 13:45
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FIN 201- Fed interest rate hike, Amazon, Boeing

Part 1

Compose a 2-4 page report, single-spaced, on the following topic. Be sure to illustrate your report with relevant financial numbers and data, and to explain the significance of this data.

BACKGROUND INFORMATION: During the Carter administration, long-term US Treasury yields exceeded 15%, and short-term T-Bills yielded near 20%. After Reagan's inauguration, interest rates began to fall as Fed Chairman Volcker's restrictive monetary policy succeeded in containing inflation. Over the past 25 years, US rates have steadily declined: T-Bills are hovering under 1% and the long bond is yielding about 4%.

Lately, though, rising oil prices have incited inflationary forces. China and other developing nations have increased their consumption for oil, metals, materials, and food. Thus, both foreign and domestic factors have spurred demand and are contributing to rising prices on a global scale.  In addition to this commodity-induced inflation, US consumers are faced with rising costs for  essential services such as healthcare and education.

The Chairman of the Federal Reserve, Ben Bernanke,  is faced with a dilemma. Should the Fed increase rates to contain inflation; or, should the Fed keep rates very low to spur the US economy which is beset by a collapse in home values, an extensive banking crisis, and a faltering stock market ?

YOUR ASSIGNMENT:  Given this economic background...Compose a 2-4 page report, single-spaced, on the following topic: If the Fed decides to raise interest rates next year, what effect would rising rates have upon the following: (1) Consumer financing for big-ticket items such as autos and homes; (2) the present and future values of annuities; (3) the NPV calculation; (4) the WACC; (5) corporate earnings ?

Be sure to illustrate your report with relevant financial numbers. Hint: for topic (3), above,  one approach you might adopt is to cite the NPV calculation from the previous case problem, then to contrast it against a new calculation performed with a higher interest rate.  Cite the numeric effect upon the NPV, and then explain its rationale and its significance.  This is the kind of "numeric illustration" that you should provide for each of the five topic sections.






Part 2

Refer to the text page 597(10th Edition) to answer Q1 and Q2. Answer length for each question: one-half to one-page, single spaced.

Q1. Why is Amazon's cash cycle so much shorter than that of competitor Barnes & Noble ? How does this comparison affect financial management decisions of other retailers ?

Q2. How does Boeing achieve a cash cycle of negative 100 days ?

Q3. Define the following terms as they apply to our work in FIN ten words or less: structure  2.working capital  3.assets  4.liabilities  5.retained earnings  6.liquidity  7.leverage  8.Sarbanes-Oxley  9.GAAP value versus book value  11.depreciation  12.straight-line versus accelerated depreciation  13.solvency  14.profitability  15. pv  16.fv  17.PVA  18.FVA  19.simple interest  20.compound interest rate  22.Rule of 72  23.annuity  24.required return formula  25.NPV  26.NPV decision rule  27.payback  28.IRR  29.formula for cost of equity  30.formula for cost of debt  31.WACC facility  33.venture capital  34.operating cycle  35.inventory period  36.accounts receivable period cycle  38.profit margin  39.ROE  40. debt/equity ratio.

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FIN 201- Fed interest rate hike, Amazon, Boeing

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Impact of Federal Reserve Bank’x xxxxxxxx xxxx Policy

Ans 1:

xxx auto sector and the xxxx xxxxxx are extremely xxxxxxxxx xx the xxxxxxxx xxxx xxxxxxxx of the xxxx The primary reason xxx the high xxxxxxxx xxxx sensitiveness xx the xxxx that xxxxxxxxx usually take xxxx from the xxxx to finance the purchase xx a xxx car xx x new xxxxx xxx xxx EMI which x person xxxx over the xxxxxxxx of the xxxx is influenced xx two factors

Term xx xxx xxxx

xxxxxxxx Rate xxxxxxx xx the xxxx for xxxxxxxxx the loan

To xxxxxxxxxx the impact of the xxxxxxxx by Fed xx raise xxx xxxxxxxx xxxx we xxxxx look xx xxx xxxxxxx used to xxxxxxxxx the xxx which xx as given below

xxx = xxxxxx xxxxxx xx x [(1+i) ^N]-1} Where L x loan xxxxxxxx = xxxxxxx xxxxxxxx xxxxxx = Loan Period xx months

xxx xxxxxxx we xxxxxx that a consumer xxxxx xx apply xxx a xxx xxxx of $20,000 xxx a 4 xxxx xxxx at xxxxxx rate xx xxxxxx

xxxx the xxx for the xxxxxxxx for xxx xxx loan will xx

xxx x xxxxxxxxxxxxxxx x [(1+.0283/12) xxxxx

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file2.docx preview (984 words)

xxx xx

The Cash cycle or the xxxx conversion xxxxx xx xxxxx xx the following xxxxxxx

Cash Cycle x Inventory xxxxxx x xxxxxxxx xxxxxxxxxx xxxxxx – xxxxxxxx Payable Period

Now xx we look at the xxxxxx xxxxxx xx Amazon for xxxx xx xxx xxxx

xxxxxxxxx Period x 36.92 days

xxxxxxxx xxxxxxxxxx Period x xxxxx xxxx

Accounts Payable xxxxxx x 93.83 days

Hence the Cash xxxxxxxxxx xxxxx for Amazon = -43.17 days

On the other xxxx xx we xxxx at xxx xxxxxx report of Barnes & xxxxx for 2010 xx xxx that

Inventory xxxxxx = 120.98 xxxx

xxxxxxxx xxxxxxxxxx Period x 6.69 days

Accounts xxxxxxx Period = xxxxx days

xxxxx the xxxx conversion cycle for Amazon = 50.94 days

xxxx the xxxx xxxxx of xxxxxx is negative xx xxxxxxxx to xxxxxx & xxxxx xx xxxxxxxxx xxx xx the low inventory xxxxxx xx xxxxxx compared to xxxxxx & Noble as well xx xxx xxxx xxxxxxxx xxxxxxx xxxxxx xxx Amazon xxxxxxxx to xxxxxx & xxxxx xxxxxxxxxxx strong xxxxxxxxxx power of xxxxxxxx

The negative xxxx cycle xx xxxxxx xxxxx it xxxxxxxx xxxx

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