Assignment
Part 1
I. Apply advance financial theories / concepts to decision making:
• Define finance and explain the role of financial managers.
• Enumerate the three basic forms of business and the advantages and disadvantages.
• Describe the financial planning process. How does asset intensity affect a financial plan?
• Discuss the concept of leverage. Use a numerical example to illustrate the effect of leverage.
II. Analyze financial issues and decisions:
• What is the difference between systematic and nonsystematic risk? Which is more important for equity investor? Which can lead to the bankruptcy of a corporation?
• What are the principal considerations when determining an overall credit policy? How do the actions of competitors affect a firm's credit policy?
• Explain the risk-return trade-off, and give two examples.
• Describe mergers, acquisitions, buyouts, and divestitures.
III. Compare and contrast domestic and international financial issues:
• Why do exchange rates pose a challenge for financial managers of companies with international operations?
• Explain political, financial & economic risks in international business.
• What effect can cultural differences have on the ownership structure of a foreign operation of a multinational business?
• Why are currency exchange rates constantly changing over time?
IV. Demonstrate professional business communication:
• What are the differences between formal and informal communication?
• What is the central focus of a company's external communication?
V. Demonstrate foundational knowledge in the core area of business:
• Discuss how monetary policy and fiscal policy are used to manage an economy's performance.
• Identify the major barriers that confront global businesses.
• Identify sources of short-term financing for business operations.
• Why do firms generally rely more on long-term funds rather than short-term funds?
VI. Discuss ethical and social responsibility issues in the context of law and financial decision:
• List two ways in which the securities markets are self-regulated.
• Identify ethical issues that you might face in business, such as insider trading, conflicts of interest, and bribery, and explain rationalizations for unethical behavior.
• Identify steps you can take to maintain your honesty and integrity in a business environment.
• Is it time for a unified approach to business ethics?
Part 1
Question 1
Ben owns an appliance and furniture store in a rented location at a shopping mall, and is insured under a commercial general liability (CGL) policy written on an occurrence basis. The CGL policy has the following limits:
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General aggregate limit
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$1,000,000
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Products-completed operations aggregate limit
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1,000,000
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Personal and advertising injury limit
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250,000
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Each-occurrence limit
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300,000
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Damage to rented premises
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100,000
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Medical expense limit (any one person)
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5,000
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Part A: Support your calculation with all necessary steps. Significant penalty will be imposed (i.e. deducting 75% of the total points) if only final results are provided.
A propane tank in the store exploded. Indicate the dollar amount, if any, that Ben's insurer will pay for each of the following losses:
a. Three customers were injured by flying debris from the explosion and had medical expenses of $6,000, $7,500, and $5,000, respectively.
b. A fire resulted from the explosion. The damage to the rented building is $50,000.
c. A customer injured by the explosion sues Jillian for $200,000 for the bodily injury.
Part B. Elaborate your reasoning. Your answer to the following should be at least 200 words.
Explain whether and whyBen's CGL policy would or would not provide coverage for each of the following situations:
a. Ben forcibly detained a customer whom he erroneously accused of shoplifting. One month later, after the policy had expired, the customer sued Ben for defamation of character.
b. An advertising firm sues Ben for using copyrighted material without permission when the material first appeared in a special holiday ad. Ben maintains that the ad material is original and belongs to him.
c. Unknown to Ben, an automatic dishwasher had a defective part. One week after the dishwasher was installed in a customer's house, it malfunctioned and caused considerable water damage to the kitchen carpet. The homeowner sues Ben for the damage.
d. An employee accidentally knocked over a heavy lamp that injured a customer's foot. The customer later presents a bill for medical expenses to Ben for payment.
Question 2
Richard, age 45, is married with two children in high school. He estimates that his average annual earnings over the next 20 years will be $60,000. He estimates that one third of his average annual earnings will be used to pay taxes, insurance premiums, and the costs of self-maintenance. The remainder will be used to support his family. Richard wants to calculate his human life value and believes a 6 percent discount rate is appropriate. The present value of $1 payable for 20 years at a discount rate of 6 percent is $11.47.
Part A: Support your calculation with all necessary steps. Significant penalty will be imposed (i.e. deducting 75% of the total points) if only final results are provided.
a. Calculate Richard's human life value.
Part B: Elaborate your reasoning. Your answer to the following should be at least 200 words.
Answer the following questions:
a. The human life value is one method for estimating the amount of life insurance Richardis to own. Keeping all other factors unchanged, explain the effect, if any, of each of the following on Richard's human life value:
a. The discount rate used to calculate the human life value is increased.
b. The amount of average annual income going to the family is increased.
c. The period over which income is paid to the family is reduced.
b. Explain the limitations of the human life value approach as a method for determining the amount of life insurance Richard is to own.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.