Cases in financial management stretcher solutions

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

MBA 615: Managerial Finance Park University Spring 1 2016

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

MBA 615: Managerial Finance (Spring 1 2016) MBA 615

Park University

THIS PRINT COURSEPACK AND ITS ELECTRONIC COUNTERPART (IF ANY) ARE INTENDED SOLELY FOR THE PERSONAL USE OF PURCHASER. ALL OTHER USE IS STRICTLY PROHIBITED.

ISBN 1323096949

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

XanEdu™ publications may contain copyrighted materials of XanEdu, Inc. and/or its licensors. The original copyright holders retain sole ownership of their materials. Copyright permissions from third parties have been granted for materials for this publication only. Further reproduction and distribution of the materials contained herein is prohibited.

WARNING: COPYRIGHT INFRINGEMENT IS AGAINST THE LAW AND WILL RESULT IN PROSECUTION TO THE FULLEST EXTENT OF THE LAW. THIS COURSE PACK CANNOT BE RESOLD, COPIED OR OTHERWISE REPRODUCED.

XanEdu Publishing, Inc. does not exert editorial control over materials that are included in this course pack. The user hereby releases XanEdu Publishing, Inc. from any and all liability for any claims or damages, which result from any use or exposure to the materials of this course pack.

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

− In print copy only − Online only

Unmarked items are available both in print and online

MBA 615: Managerial Finance (Spring 1 2016)

Table of Contents “Case 8: Fred Alberts, Rookie” by Stretcher, Robert; Michael, Timothy B 1

“Case 12: Working Computers, Inc.” by Stretcher, Robert; Michael, Timothy B

7

“Case 13: Automotive Specialties, Inc.” by Stretcher, Robert; Michael, Timothy B

15

“Case 14: Gilad Publishing Company” by Stretcher, Robert; Michael, Timothy B

23

“Case 15: Scope City, Incorporated (A)” by Stretcher, Robert; Michael, Timothy B

29

“Case 19: McGhee Corporation” by Stretcher, Robert; Michael, Timothy B 35

“Case 20: Labeltech Corporation” by Stretcher, Robert; Michael, Timothy B 39

“Case 22: Sound Advice” by Stretcher, Robert; Michael, Timothy B 45

“Case 26: Haveloche Corporation” by Stretcher, Robert; Michael, Timothy B 53

Bibliography 57

i

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016 ii

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

Case 8

FRED ALBERTS, ROOKIE

FRED'S ACCOUNT

Fred pressed the 'return' key, carrying out the trades he had figured would give him a good return. He had opened the online stock trading account in order to learn about the process of trading and to take advantage of his academic knowledge of how the markets determine stock values. He had taken several finance classes in his undergraduate degree, and had enjoyed learning the way investors decide how much to bid on stocks. Fred figured he could take advantage of this knowledge in creating more wealth than he could if he just invested in an investment fund.

THE BROKER'S ADVICE

When he opened the trading account, Fred had signed up for telephone access to a broker. The account allowed him a certain number of calls and a certain amount of time in consultation with the broker each month. Now, Fred had quite a sum of free cash in the account, money he had transferred from an investment fund that he was not very happy with. The amount he had to invest was about $68,000. He decided to take advantage of the advisement service, and made his first telephone call.

"Welcome to Bettertrade services, Mr. Alberts. My name is Brad Cendron. How can I assist you today?", the voice asked.

"Yes; I would like to get your advice on how to invest a sum of money. My objective is to invest this amount in stocks that appear to be undervalued by the market. Can you recommend about ten stocks that would fit that description?", Fred asked.

"Oh, yes, I'd be happy to. We have listed our top bargains on the "top stock picks" list on the website. Are you online now?", Brad asked.

"Yes, I am," Fred replied. "Oh, I see it here. They are in order, according to your idea of how much of a bargain they are, right?"

53

1

Downloaded by Kelly Weaver on 1/22/2016. Park University, Ronal Lentz, Spring 1 2016

54 Cases in Financial Management

"That's correct, Mr. Albert. We believe that these 20 stocks are going to have greater upside potential over time. I can help you make the transactions, if you'd like."

"Well, I'm going to do a little more research on my own first, but thank you for the link. I'll just carry out transactions via the website, since the transaction fees are lower that way," Fred said.

"OK, Mr. Albert," Brad replied. Let us know if you have other questions, or if we can assist you further."

Fred printed out the list of stocks, and set about the task of collecting information about them. He went to the "market data" link on the company's website to get some information. For each firm, he downloaded the history of dividend payments, and the beta. He also downloaded current treasury bond rates and the rate of return on a broad market index, which he would use as an indicator of the market return. Fred summarized the information and prepared to determine the value of the stocks according to the financial models he had studied in college.

Fred's collection of information and the current market prices of the stocks in the "top stock picks" list from his broker appear in Exhibits 1, 2, and 3.