Indirect Assessment Methods

Supporting Lecture:

Review the following lecture:

• Indirect Measures

Before beginning work on this discussion forum, please review the link Doing Discussion Questions Right, the expanded grading rubric for the forum, and any specific instructions for this topic.

Indirect assessment explores how individuals feel or perceive a particular situation. While many faculty and administrators in higher education employ a combination of indirect assessment methods, common choices are surveys, focus groups, and interviews.

From the bullet point list below, select one topic for which you will lead the discussion in the forum this week. Early in the week, reserve your selected topic by posting your response (reservation post) to the Discussion Area, identifying your topic in the subject line. Be specific about your topic so that someone else could select the same bullet point but focus their post differently. By the due date assigned, research your topic and start a scholarly conversation as you respond with your initial or primary post to your own reservation post in the Discussion Area. Make sure your response does not duplicate your colleagues’ responses.

• Explore the advantages and disadvantages of surveys in terms of cost, ease, and impact on students.
• Explore the advantages and disadvantages of focus groups in terms of cost, ease, and impact on students.
• Explore the advantages and disadvantages of interviews in terms of cost, ease, and impact on students.

Additionally, provide a brief paragraph describing a personal or professional experience where you participated in an indirect assessment—survey, focus group, or individual interview—and explain how that experience impacted your understanding of the material this week.

As the beginning of a scholarly conversation, your initial post should be:

• Succinct—no more than 500 words.
• Provocative—use concepts and combinations of concepts from the readings to propose relationships, causes, and/or consequences that inspire others to engage (inquire, learn). In other words, take a scholarly stand.
• Supported—scholarly conversations are more than opinions. Ideas, statements, and conclusions are supported by clear research and citations from course materials as well as other credible, peer-reviewed resources.
  

******* Please include citations to justify your premises. The general rule is one citation per paragraph.

******Cite from your course text in addition to outside/relevant scholarly resources.

Assignment Details

To build teams and manage development in an organization, leaders must focus on employee job satisfaction and performance. Understanding the aspects of the organization that bring job satisfaction to employees helps achieve company goals while maintaining employee morale. Leaders must be knowledgeable about supporting the possibility of a work–life balance for their employees.

Read the article titled Korean Air Enhancing Employee Satisfaction, and complete the following questions:

• Explain how an organization can help develop and build teams to make them productive as a unit.
• Describe an approach to employee satisfaction from the article.
• What are some other ways that leaders can increase levels of job satisfaction among employees within an organization?

Businesses have to make many financial decisions that have a direct impact on operations and the ability to successfully compete in the marketplace. Base your writing on the information from the course coupled with information located in the Strayer databases or Internet.

 

Write a two to three (2-3) page paper in which you:

 

1. Assume that you are financial advisor to a business. Describe the advice that you would give to the client for raising business capital using both debt and equity options in today’s economy. Outline the major advantages and disadvantages of each option.
2. Summarize the advice that you would give the client on selecting an investment banker to assist the business in raising this capital.
3. Explain the historical relationships between risk and return for common stocks versus corporate bonds. Explain the manner in which diversification helps in risk reduction in a portfolio. Support response with actual data and concepts learned in this course.
4. Use at least one (1) quality references. Note: Wikipedia and other Websites do not quality as academic resources. However, you may use data sources, such as Yahoo Finance.

 

Your assignment must follow these formatting requirements:

 

• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
• Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

 

The specific course learning outcomes associated with this assignment are:

 

• Describe the characteristics and valuation of stocks and bonds, and how each is a key component in the financing of corporations.
• Describe the key elements of the securities markets, and how the markets drive financial transactions, decision making, and risk analysis.
• Use technology and information resources to research issues in finance.
• Write clearly and concisely about finance using proper writing mechanics.

P8–14 Portfolio analysis

You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2013–2016.

Expected return

Year     Asset F     Asset G   Asset H

2013       16%           17%         14%

2014       17              16             15

2015       18              15             16

2016       19              14             17

Using these assets, you have isolated the three investment alternatives shown in the following table.

Alternative Investment

1) 100% of asset F

2 )50% of asset F and 50% of asset G

3 )50% of asset F and 50% of asset H

a. Calculate the expected return over the 4-year period for each of the three alternatives.

b. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.

c. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives.

d. On the basis of your findings, which of the three investment alternatives do you recommend? Why?

 

P8–23 Portfolio betas

Rose Berry is attempting to evaluate two possible portfolios, which consist of the same five assets held in different proportions. She is particularly interested in using beta to compare the risks of the portfolios, so she has gathered the data shown in the following table.

Portfolio weights

Asset       Asset beta    Portfolio A    Portfolio B

1                    1.30                 10%             30%

2                    0.70                 30                 10

3                    1.25                 10                 20

4                    1.10                 10                 20

5                     0.90                 40                20

Totals 100%           100%

 

a. Calculate the betas for portfolios A and B.

b. Compare the risks of these portfolios to the market as well as to each other. Which portfolio is more risky?

P9–1 Concept of cost of capital

Wren Manufacturing is in the process of analyzing its investment decision-making procedures. The two projects evaluated by the firm during the past month were projects 263 and 264. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table.

Basic variables    Project 263     Project 264

Cost                         $64,000               $58,000

Life                           15 years               15 years

Expected return         8%                       15%

Least-cost financing

Source                     Debt                        Equity

Cost (after-tax)           7%                         16%

Decision

Action                       Invest                   Don’t invest

Reason                     8% > 7% cost        15% < 16% cost

 

a. Evaluate the firm’s decision-making procedures, and explain why the acceptance of project 263 and rejection of project 264 may not be in the owners’ best interest.

b. If the firm maintains a capital structure containing 40% debt and 60% equity, find its weighted average cost using the data in the table.

c. If the firm had used the weighted average cost calculated in part b, what actions would have been indicated relative to projects 263 and 264?

d. Compare and contrast the firm’s actions with your findings in part c. Which decision method seems more appropriate? Explain why.

P9–2 Cost of debt using both methods

Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30 per bond will be incurred in this process. The firm is in the 40% tax bracket.

a. Find the net proceeds from sale of the bond.

b. Show the cash flows from the firm’s point of view over the maturity of the bond.

c. Calculate the before-tax and after-tax costs of debt.

d. Use the approximation formula to estimate the before-tax and after-tax costs of debt.

e. Compare and contrast the costs of debt calculated in parts c and d. Which approach do you prefer? Why?

P9–17 Calculation of individual costs and WACC

Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm’s tax rate is 40%. Debt The firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond. Preferred stock Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters. Common stock The firm’s common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year (2013) is $4. Its dividend payments, which have been approximately 60% of earnings per share in each of the past 5 years, were as shown in the following table.

Year      Dividend

2012        $3.75

2011          3.50

2010          3.30

2009          3.15

2008          2.85

It is expected that to attract buyers, new common stock must be underpriced $5 per share, and the firm must also pay $3 per share in flotation costs. Dividend payments are expected to continue at 60% of earnings.((Assume that r1+=r5)

a. Calculate the after-tax cost of debt.

b. Calculate the cost of preferred stock.

c. Calculate the cost of common stock.

d. Calculate the WACC for Dillon Labs.

Create the financial portion of the strategic plan. The plan must include 3 years of income statements, balance sheets, and cash flow statements.

 

Write a memo of no more than 1,050 words that explains the plan’s major assumptions and identifies areas of risk. The memo must include the following:

• A review of cash flow statements and a recommendation of implementing new short-term working capital strategies on long-term cash flow
• An explanation of corporate risk mitigation techniques used in capital budgeting
• An analysis of the effect of a company’s capital structure on strategic financial planning and how it affects risk

Refer to the Mergent Online database available in the University Library for financial plan examples.

 

Format your memo consistent with APA guidelines.