Page 1 of 81 Ivanildo Fortes Summer1 2016 BUSI6105*70 - MBA Portfolio Page 2 of 81 Table of Contents Introductory Statement ................................................................................................................................ 3 Resume: ........................................................................................................................................................ 4 References ................................................................................................................................................ 6 Goal 1: Professional Communication: 1.1 Professional Writing ................................................................... 7 Porter’s Five Forces ................................................................................................................................. 10 Conclusion ................................................................................................................................................... 15 Goal 1: Professional Communication: 1.2 Oral Communication ................................................................ 18 Video Book review .................................................................................................................................. 19 Goal 2: Leadership: 2.1 Capacity to Lead .................................................................................................... 21 The Evo Project; MNEs, SWOT and PESTLE analysis. .................................................................................. 22 Works Cited ................................................................................................................................................. 25 Goal 2: Leadership: 2.2 Goal Setting ........................................................................................................... 27 Case study: Chacon Inc. .......................................................................................................................... 29 Goal 3: Business Environment: 3.1 Business Ethics .................................................................................... 37 When salaries aren’t secret. Harvard Business Review .......................................................................... 39 Goal 3: Business Environment: 3.2 Global Business Environment ............................................................. 41 The Scope of MNEs in International management and global business ................................................ 44 Works Cited ................................................................................................................................................. 51 Goal 4: Business Integration: 4.1 Decision Making ..................................................................................... 52 Home Work Problem Set #1 ................................................................................................................... 54 Goal 4: Business Integration 4.2 Strategic Planning ................................................................................... 68 What is the difference between structural and cyclical unemployment?.............................................. 70 Works Cited ................................................................................................................................................. 81 Page 3 of 81 Introductory Statement I am a manager for thermofisher scientific, originally from Cape Verde, about to finish my MBA with emphasis in general business. I enjoyed playing soccer with my friends, I am the captain of the team because of my leadership skills and abilities, my team trust me to lead them every game. I have developed a diverse knowledge in US, by working with people from all over the globe you get to learn a bunch, you really do. So I am looking forward to use my MBA from WT&AM University to help me to continue to growth at my job. Once I complete my MBA this summer of 2016 I will start exploring different positions at my current company, my 5 years professional goal is to be a director, and then in 7 years be in a VP position. Page 4 of 81 Resume: Ivanildo Fortes Pawtucket, R.I 02860 401-696-4381 ivanildofortes@gmail.com Education MBA Emphasis on Business - Canyon, Texas, Aug 2015 West Texas A&M University Bachelors of Science Emphasis on Business Administration- Denver, Colorado March 2014 Colorado Technical University Summary Profile Accomplished and energetic operations manager with a solid history of achievement in warehouse and supply chain, motivated leader with strong organizational and prioritization abilities. Areas of expertise include employee development, engagement and encouragement. Skills           Active Listening Management of Personnel Resources Critical Thinking Transportation DOT Production and Processing/ Inventory Control System Tracking Time Management FTZ Regulation OSHA Certified Work Experience Warehouse Site Manager ThermoFisher Scientific Peabody, MA June 2015 to Present     Manage 2 direct reports and indirectly 16 warehouse/driver associates. Manage a budget of $2,500,000 per year Oversee training/compliance with IATA/DOT/OSHA, and local government Negotiate site contracts with outside contractors Warehouse Operations Manager Frito-Lay/PepsiCo Dayville, CT Jan 2013 to June 2015     Manage 4 direct reports and indirectly 110 warehouse associates. Confer with supply chain planners to forecast demand or create supply plans that ensure availability of materials or products. Developed procedures for coordination of supply chain management with other functional areas such as, manufacturing, sales, traffic, and quality assurance. Currently, exposed to FTZ Rules and Regulations for International distribution Page 5 of 81 Facility Manager Inmar Indianapolis, In From Aug. 2011 to Jan. 2013  Manage 3 shifts (24/7) with 4 direct reports and indirectly 150 hourly associates, in a 400,000SF warehouse. Processed 16 returns load daily, by using our WMS's, Manhattan SCALE, and ExpressLane. Scanned 350,000 units daily, generating 120 salvage pallets. Set up daily liquidation pick-ups with buyers, averaged 2 outbound loads daily. Conducted staff training on SOP's, Created KPI's for facility. Warehouse Supervisor Versacold Logistics Taunton, MA Jan. 2004 –Aug. 2011     Picked on average 35K-40K cases daily, 75-80 loads to be shipped across NE region. Managed 65 associates in a 350,000SF warehouse; on boarded and trained all new associates. Conducted safety audits; Monitored and addressed any safety related issue. Plan work schedules and assigned duties to maintain adequate staff for effective performance of activities and response to fluctuating workloads. Evaluated employee performance and prepared performance appraisals. Certifications: 10-Hour OSHA Outreach Training Course for General Industry, Lean Six Sigma, DOT HazMat General & Security Awareness Languages Spanish, Portuguese, Creole Page 6 of 81 References Phil Braun Director of ops at Thermofisher Scientific Peabody, MA 01960 Phil.Braun@thermofisher.com Bill Shea Facility manager at Inmar Taunton, MA 02860 Bill.shea@inmar.com Bill Turnwald Northeast Director of ops at Inmar Indianapolis, IN 02486 Bill.turnwald@inmar.com Page 7 of 81 Goal 1: Professional Communication: 1.1 Professional Writing CIDM6310_Report&Presentation - Porter’s Five Forces Project Requirements: CIDM studies the interaction among the political, economic, social, and cultural aspects of the business environment of multinational corporations in order to embrace the proper marketing strategies to enhance the commercial results of such as Porters Five Forces. The requirements Understood were; 1. Power buyer, Market penetration, competitive forces Executive Summary: The summary states clearly the topic of the paper. It gives examples how Porter’s five Forces shape the business world Introduction: The introduction engages the reader right from the beginning, Moreover; it proposes a simple, but academically supported analysis of the issue that is ascertainable using recent verifiable statistics and facts. Background: This report and presentation contains extensive information concerning the Porter’s five force, how to penetrate different markets for business opportunities. Analysis of Issue: This analysis is done into the context of the Information Technology Management class of the summer of 2014.In addition to the textbook, Porters Five Forces; there were also journals from Wall Street Journal. Recommendation: The recommendation are, some managers argue that this is a god practice to use while doing business globally because it can brings some ethical concerns. Conclusion: The conclusion of the paper responds to the fact the Porter’s Five Forces can be used strategically to penetrate markets, customers. References Page 8 of 81 APA format Style: This is an easy-to-follow document for an academic or non-scholar reader due to the use of proper structure contextualizing the topic, offering theoretical basement, and straightforward data. The structure flows from summary and introduction to background and analysis and conclusions. It takes care of using the proper names and units for each information, and using short statements free of orthographic or grammar errors. Comment: The great contribution of this paper is its approach to the business activities. The fact that it is based on academic theories and official data enhances its credibility and allows later follow ups. Page 9 of 81 Ivanildo Fortes Summer 2014 CIDM6310G. Kelly West Texas A&M University Page 10 of 81 Porter’s Five Forces Competitive forces that shape strategy According to Michael porter, there are five forces that shape strategy. These forces affect strategy and decision making in various ways. According to him, the swot analysis needed to be enhanced because according to him, they were being over used. This paper is therefore going to look at these strategies from my own view point. Rivalry among competitors When there are two companies competing in the same field, the result is always breath taking. For example if we have white dent tooth paste and Colgate Palmolive, these two competing will be competing for almost everything. They will compete for market share, consumers share and of course compete in terms of what product is best. They will be aiming at out doing each other.(Williams, 2012). The benefit of competition is that while the companies compete they become more creative. The kinds of products they produce always stand out in terms of uniqueness and at least strive to offer what the competitor cannot offer. For instance, white dent will claim to use herbal products while Colgate will claim to be the best teeth whitener. According to parker, rivalry makes the company’s strong. In his opinion, if companies are rivals, they will look at satisfying the consumers’ needs more in a way that their rivals cannot. In my own opinion, rivalry is very important. It will lead to growth of the business to reach its objective and cover a wider region. However, it can also be disastrous if used badly. A company can easily kill the other if the competition is not fair. Bargaining power of buyer’s Page 11 of 81 According to Michael porter, the bargaining power of a buyer determines to a larger extend the strategy of the company. The buyer would easily encourage growth in terms of sales to the company. For instance if the buyer’s bargaining power is high, they would easily negotiate and place orders for large amounts of the products. A buyer, according to porter plays a crucial hand in any business. If they come with a handsome proposal and it is declined, the offer will eventually go to your rivals. Bargaining power of the clients is also driven with the quality of the product that it is on offer. Logically, a client will only bargain for what is good. This will also boost competition. In this study, the margins of supplies increase when the bargaining power of buyers is high. This power goes high when the customer can produce the product for themselves. This means that if you cannot offer at their bargained price they will produce one on their own. Secondly, customers are price sensitive. If you offer high prices for goods then you automatically call for bargain. Thirdly, the supplier has got very high fixed costs which will of course work together with price sensitivity. The prices need to be reasonable. Fourthly, is when the customers have an idea of the production cost of this item. This means that they will try bargain for an amount that they think is reasonable and okay for them. In this regard, the customer is in the know and will definitely seek to pay the necessary amount only. Fifth reason which is commonly used is when they are buying in large volumes. In this aspect they will not expect to pay the same price as anyone purchasing a single commodity. They will be buying in whole sale and in normal circumstances; the wholesale and retail prices are always different. These customers always want their own prices and a business will always consider them more so if they are regular customers. Threat of new entrants New entrants will always want to bring in a new aspect in to the market. They come with lots energy and will always want to have their own niche in the market. Their main intention is Page 12 of 81 always to shake up completion and bring in new factors more so if they are coming from a different kind of production. Their advantage is that there will be new competito0n which sparks performance. The companies that have existed before will not want to be outdone by the new baby in the market. This new entrant’s shaken up the major factors of the market like consumer loyalty, market share and prices. If the market has got no barriers, the business will be open and in return their will be new entrants to the market. There are those factors that determine if there will be new entrants in the market. These are: access to raw materials. If they are limited, it becomes a barrier to entry. Secondly, if the existing customers have a strong bond with the companies that have been in the business for long, it becomes hard for them to break this bond thus they will lack customers, which is a serious area of concern to any serious business that is starting. The other factor is availability of expertise. If there are no experts to help in the production, it automatically means that there is no business. The experts make the product in a situation a new business does not have the best people in the field that is an automatic barrier. Consumers too can be very dedicated to a product and may not really adopt to the new product. In this event that it is hard to convince them to use this new product as well, the business fails since there is no market. Threat of substitutes A substitute is a similar product in the market that is of low price. The other substitute according to porter is availability of a similar product but with better services. Each consumer looks for something different. For companies to spark growth and remain relevant to the business there is a need for them to always satisfy the consumers’ needs and demands. In this case, they will need to be able to produce products of all kinds. For instance, in my own evaluation, a company producing facial products should cater for all skin types. Page 13 of 81 Consumers will always favor a product that they think satisfies their needs. In this respect, threat of substitutes according to porter, has got factors that determine if they will spark any difference in the market or not. These factors include: current trends. Each person wants to move with time. Therefore, if a company that has existed for several years does not make amends to their commodity depending on the current needs, then the consumers go for substitutes. Consumer loyalty is another factor. The product may not be changed and people will still prefer it to any other new product. In this respect, even if a company has new products no one will buy because the people will have maintained their loyalty to their brand. Prices play a huge responsibility here as well. Even though a commodity is of very high quality, and priced highly, no one will buy. However, if a product is of the same quality with a lower price, people will still buy it because the price favors them. The higher the price, the higher the number of people or consumers that will opt for substitutes. To remain relevant in the business, the prices have got to be sensitive. Bargaining power of suppliers Suppliers control the market. They actually command the market trend. Suppliers are directly involved with the consumers therefore will be well placed in controlling the business strategies. A supplier with a lot of consistency and with quality products wins the hearts of the consumers. The bargaining power of the consumers is something to go buy as well. In porter’s book, powerful suppliers capture the consumers. Each consumer will require to be served by someone who is reliable and able to shake the market. This means that if you are unreliable no person will want to be associated with you. In my opinion a supplier is the one to command the market. There are those factors that will determine this as well. The supplier’s power can be very high if: there are no substitutes in the market. The people have no other choice but to use your products. Page 14 of 81 If the customer’s bargaining power is low due to fragmentation, the suppliers bargaining power goes high. This means that the supplier will capitalize on this to create a strong bond with the consumers who are wide spread. Therefore, they take what is offered to them. If the buyers will profit more from the products, the supplier will capitalize on this to ensure that the people buy this product. When the benefit is towards the consumers’ side, it is very evident that they will always take the product no matter what. The other area that suppliers capitalize on is when the switching cost from one supplier to the other is high. This means that the customer has got no any other choice. In this case the supplier will ensure that the customer sticks to them only. However, in a fair opinion, this is an unbalanced approach. The consumer needs to be treated fairly. Use the factor that the switching cost is high, is actually taking advantage of tis clients, the switching cost should be favorable to encourage fair competition. Consumers will always be loyal to a product if they like it so much, hence the need to make switching unachievable is an called for. Industry analysis This is also another factor that needs to be done. It is important that the company is clear on what they produce and how they produce it. They also need to know whom the products target and how best they can satisfy this need. They need to know, the existing substitutes of their products, identify their consumers as well as identify their competitors. A good industry analysis will take the business a notch higher (Kourdi, 2009). Page 15 of 81 Conclusion These approaches that porter use clearly drives business. While business is all about pricing it is important that they have effective strategies in place. According to this discussion it is very evident that the company’s require to be more resourceful in their strategies. Sometimes business do well not because they have been in business for long but because the strategies used were the best. A business may have been launched but to date has never achieved most of its objectives (Rudani, 2013). A business strategy tells everyone involved in the business what to do. They also highlight most of the challenges that a company can face for it to perform. If there is a lack of strategies, the business becomes totally redundant. The company will always remain focused and there will be no any deviation whatsoever. A company’s strategies is its stronghold. It is what distinguishes one business from the other. If the business has weak strategies it cannot therefore with stand the competition. This is because even decision making will become a problem yet, decisions will require to be made each single day. Competitors have got their own strategies but these factors are common to all of them. However, there are those factors that will work best for a particular company and the same will not for the other company. All these competitive aim at achieving a common purpose and goal. A business looking to do well must have a fair look and approach of all this forces to establish the ones that they wish to capitalize more on in order to shape their own strategies that they will use to challenge their competitors. Before, porter came up with this idea, there was the issue of swot analysis. This cannot be completely eradicated in any business worth its while but can be incorporated to work together with these strategies. The SWOT was mainly the company’s strength, weakness, objectives and threats. Page 16 of 81 A good business should be able to establish all these aspects if they want to develop something that is strong and is worth it. The swot analysis has always been useful and when added to the porter’s five forces then the company will beat its competition. In my own opinion, the porter’s five forces are a useful tool that can be used and prove to be productive. However, there are those aspects that need to be balanced to avoid misusing the other partner. For instance the consumer should not take advantage over the supplier to have commodities cheaply while on the other hand, the supplier too should not over charge the consumer because that’s the only company that can supply that particular commodity.The industry too needs to be open to change and welcome any ideas that will spark growth to the company. Change is very much inevitable and should be welcomed to ensure that consumers get the best that is on offer. Page 17 of 81 References Daft, R. L., &Marcic, D. (2013).Understanding management. Australia: South-Western Cengage Learning. Kourdi, J. (2009). Business strategy: A guide to taking your business forward. London, Eng: Economist in association with Profile Books. Rudani, R. B. (2013). Principles of management. New Delhi: McGraw Hill Education (India. Williams, C. (2012). Effective management: A multimedia approach. Mason, OH: SouthWestern/Cengage Learning. Page 18 of 81 Goal 1: Professional Communication: 1.2 Oral Communication Personal book review project for MKT 6352, by Dr. S. Anwar in the summer of 2015 Project Requirements: It was to read the course textbook and uploaded a YouTube speech presentation done by me Organization: The info used was from the textbook, it was unique because it couldn’t be used any tool such as Power point presentation, excel, word, but instead got a link to check it in YouTube. Summary: The subject of the project as well as the problem to solve, the tool used, the data produced, and the conclusions withdrawn were briefly but completely exposed throughout the slides. Delivery: The lecture was carried out through YouTube presentation, exhibiting key terms or phrases which the presenter used to explain in detail. Mannerisms: The formalities of a professional session were respected, yet in harmony with a relaxed attitude. Presenters were sure of offering adequate comparisons to make complex rationing clear for the audience. Use of Media: Although this lecture was performed within the most technology knowledgeable audience, it was engaging, fluid and easy to handle. Comment: This presentation was very satisfactory not only because of the grade attained, but also because it was a real case of technology, I had to learn how to use YouTube to upload and do the presentation. Page 19 of 81 Video Book review https://www.youtube.com/watch?v=kluv0cHMTas Page 20 of 81 Ivanildo Fortes Summer 2015 MKT6352Syed Tariq Anwar Ph.D. West Texas A&M University Page 21 of 81 Goal 2: Leadership: 2.1 Capacity to Lead Developing Transitional Strategies Project for MGT 6330 by Dr. S. Anwarin the fall of 2014 Project Requirements: In this projected the groupwere required to demonstrate understanding in:  The Evo Project; MNEs, SWOT and PESTLE analysis. Relating to Group: This was a diversity group of students, we had members from Chine, Chille, Mexico, ew Zealand. So the one big challenge that we had was being available at the same time, because of the time Zone. Ability to Listen: As the group leader I had to listen to my team , my management style is being a great listener and less talking, and that it was in displayed trough out this project. Ability to Manage: During the project I was required to set up duties for the team, also follow up to make sure everything was being completed in a timely fashion. Balance: This is the most important trait in leadership as I see it. A leader cannot be a permanent boss, but a motivator and a follower when needed. In this group, we all became leaders when we were the expert in a specific subject. The programmer led the development of code; the data base expert was the authority when designing context diagrams and the object model; the marketer directed the development of user interfaces and functional requirements; and the technical professional assumed control over the technical requirements. Decision: During this I had to make decision based on priority , I wanted everyone to participate as equal as possible, so I had to keep checking everyone’s work and followed up if needed. Understanding Change The platform for group projects was developed to help all kinds of teams working towards common objectives in spite of the differences among the members, their locations, and their time availability. The impact of such technology on the performance of these groups is unquestionable. The most important contribution of this specific model is the voting system to approve changes. Page 22 of 81 Comment: This project was a valuable experience. The Evo Project; MNEs, SWOT and PESTLE analysis. Q 2.Case 3.3 (GE's Imagination Breakthroughs: The Evo Project, p. 248); 2 pages. a). What are the major issues in the GE case? Discuss 3-4 issues. The study of the case of GE Imagination Breakthroughs: the Evolution Project has been carried out. Evolution or in short Evo is a locomotive that is a precedent to the earlier models of the locomotives. The organic growth lies at the heart of GE growth policies, and GE prefers organic growth rather than having mergers and acquisitions. The company had sold AC4400 models before which were popular, and the company started making AC6000 which became a brilliant failure to the company because only 207 units were sold as compared to more than 3,000 units sold of AC4400 model. The government was forcing the railways to reduce the emissions and market forces such as increasing fuel prices were forcing the railways to acquire new locomotives. This demand was hidden in the future; however GE saw these prospects, and initiated Evo project. The first issue was the feasibility of the new model Evo, as the company would have to pay for the ‘sins’ of the past related to AC6000 model failure. To resurrect credibility, the test run by making financing arrangements to customer were carried out for 2 million miles, and the solidified facts were represented to the customers. There were 11 major improvements in the new locomotive. Page 23 of 81 The marketing function was aligned. In order to reap the effort of Imagination breakthrough, and functionality of Evo fuel efficiency and lower emissions, the marketing was required. The company did not offer lower or attractive prices to customers, instead conferred the customers that the new model will have fewer emissions and will save fuel by 3-5%. Therefore, the company charged premium prices. The initial study of anticipating the rising fuel prices and government regulations about the emissions urged the customers to look for a new model, and GE offered exactly what they were looking for. This resulted in record sales, and the company had numerous orders worldwide and the sales of almost 2 years were booked in advance. The company did not need to reinvent the wheel. Instead, it was the time to reap and grow, and, therefore, the marketing department was restructured, reinforced and strengthened with more professional profiles. In order to meet the globalised demand, the company made the global modular that comprised of a single model with customizations available. The customizations could be made according to the country and regional requirements; however, the core content was the same. The other challenge that the company had was the balance of economies of scales and the local responsiveness. The company recognized after synthesizing the data that the global modular approach is expensive, and instead the company should categorize the Evo into 5 main types that could address the 90% global demand. This resulted in further cost reductions. b). What did you learn from the case? Please be specific in your analysis and discussion. The company carried out a strategic analysis and anticipated the rise in fuel prices. Due to the ‘China effect’, the trade global trade volume relevant to US increased, and this resulted in larger traffic. The government anticipated that this will cause harm to the environment; therefore, the Page 24 of 81 locomotives should ensure least emission of pollutants into the environment. One factor was related to the legislation, whereas the other factor i.e. fuel inflation was related to market. These two factors provided synergistic growth and provided the objectives to the new model that the company was launching. This strategic effort resulted in a competitivespace; that was transformed into a competitive advantage by the company. Further, I learned in this case was the use of tools, techniques and approaches that brought this model to a successful venture. In order to ensure credibility, the company did not use a paperbasedstudies but provided comprehensive experimental evidences to customers. The customers may be reluctant to be tested. Therefore, the company arranged the financing arrangement and leased these locomotives at nominal rates. The company took this step, because the company had something to believe that it had something to offer in the market. These experimental evidences were further used to launch the Evo in market. This effort resurrected the brand image as well as leveraged the sales. The enhancements to the Evo were made. I also observed the practical implication of the balance between economies of scale and local responsiveness. This strengthened my understanding about the economies of scale, local responsiveness, and consequently the financial benefit resulting from their interplay. The company managed this balance by introducing global modular first, which consisted of customizable core model, and the local demand could be met after making it adaptable to the local needs. The company realized that this approach is expensive, and the economies of scale are not being achieved, therefore company categorized the Evo into five major categories that could meet the 90% of the global demand in order to achieve this contextual challenge. With contextual, strategic and brand reliability techniques, the company made this product successful by continuing and pursuing the Organic Growth Strategy, which was the central perspective brought by Immelt. Page 25 of 81 Works Cited DOL. (2014). Minimum Wage. Retrieved 9 28, 2014, from www.dol.gov: www.dol.gov/dol/topic/wages/minimumwage.htm Eiteman, D. K., Stonehill, A. I., Moffett, M. H., & Pandey, A. (2007). Mutinational Business Finance, 10/E. Pearson Education India. FDIReport. (2013). The FDI Report 2013: Global greenfield investment trends. FDI Intelligence. Grosse, R. (2013). Multinationals in Latin America. Routledge. Schwab, K. (2014). The Global Competitiveness Report 2014-2015. Geneva: World Economic Forum . TradingEconomics. (2014). South Korea GDP. Retrieved 9 28, 2014, from http://www.tradingeconomics.com: http://www.tradingeconomics.com/south-korea/gdp WorldBank. (2013). GDP per capita (current US$). Retrieved 9 28, 2014, from http://data.worldbank.org: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD Page 26 of 81 Ivanildo Fortes Fall 2014 MGT6330 Syed Tariq Anwar Ph.D. West Texas A&M University Page 27 of 81 Goal 2: Leadership: 2.2 Goal Setting Project Requirements: ACC 6305- Case study: Chacon Inc. Goal Recommendation: This case study provides relevant, clear, feasible, and high quality goals and recommendations with regards to Starbucks striving to be a leader in multiple international markets. This case study also demonstrates the considerations required for alternative goals and recommendations through the decision processes that Chacon Inc must take part in. Measuring Outcomes: Through this case study, the understanding of performing to the desired level with regards to the outcomes are made clear. These plans for measuring the desired outcomes are presented in a detailed and realistic manner so that it is fully understood how Chacon is performing and will possibly perform in the future with regards to the international markets discusses Conclusion: This case study makes conclusions regarding the goals and recommendations for Chacon to succeed in the international realm. These goals provide a great deal of added value to the organization’s plan for success. These recommendations are also clearly defined throughout the case study and realistic to achieve. Presentation: The structure of this case study is in a question and answer format which gives the reader the ability to easily understand which details and recommendations go with which portion of the project. Within each section, the case study is well laid out and easy to follow as well. Comment: One of the greatest assets on our team for this project was an individual who had been working for Chacon for a while. Page 28 of 81 Ivanildo Fortes Summer 2014 ACC6305D. Pullian West Texas A&M University Page 29 of 81 Case study: Chacon Inc. Inventory Valuation under Absorption and Variable Costing with Decrease in Ending Inventory The following information pertains to Chacon Inc. for last year: Required: 1. Calculate the cost of one unit of product under absorption costing. Round your answer to the nearest cent. $ _________________ per unit 2. Calculate the cost of one unit of product under variable costing. Round your answer to the nearest cent. $ _________________ per unit 3. How many units are in ending inventory? _________________ units 4. Calculate the cost of ending inventory under absorption costing. $ _________________ 5. Calculate the cost of ending inventory under variable costing. $ _________________ 2. eBook Page 30 of 81 Exercise 8-27 Income Statements under Absorption and Variable Costing with Decrease in Ending Inventory The following information pertains to Chacon Inc. for last year: Assume that the selling price is $27 per unit. Required: 1. Prepare an income statement using absorption costing. Chacon Inc. Absorption-costing income statement For Last Year $ $ Less: $ Page 31 of 81 $ 2. Prepare an income statement using variable costing. Chacon Inc. Variable-costing income statement For Last Year $ Less variable expenses: $ $ Less fixed expenses: $ $ Page 32 of 81 3. eBook Exercise 8-30 Segmented Income Statements, Inventory Valuation For the coming year, Paulson Computers Inc. expects to produce and sell 144,000 computers. Of these, 64,000 will be consumer (personal) computers and 80,000 will be small business computers. Common fixed overhead is $1,700,000. Additional information for the coming year is as follows: Fixed selling and administrative expense for Paulson Computers is $2,960,000 per year. Required: 1. Conceptual Connection: Calculate the unit variable cost under variable costing. Total Unit Variable Cost Consumer computers $ _________________ Small business computers $ _________________ Is this cost the same as unit variable product cost? _________________ Why or why not? The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________ Page 33 of 81 2. Prepare a segmented variable-costing income statement for next year. The segments correspond to product lines consumer computers and small business computers. Paulson Computers Inc. Segmented Income Statement For the Coming Year Consumer Computers Small Business Computers Total $ $ $ $ $ $ $ $ $ Less variable expenses: Less direct fixed expenses: Less common fixed expenses: $ Page 34 of 81 4. eBook Exercise 8-31 Ordering Cost, Carrying Cost, and Total Inventory-Related Cost Ranger Company purchases 17,280 units of Product Beta each year in lots of 864 units per order. The cost of placing one order is $10, and the cost of carrying one unit of product in inventory for a year is $6. Required: 1. How many orders for Beta does Ranger place per year? _________________ orders 2. What is the total ordering cost of Beta per year? $ _________________ 3. What is the total carrying cost of Beta per year? $ _________________ 4. What is the total cost of Ranger's inventory policy for Beta per year? $ _________________ 5. Conceptual Connection: Is Ranger's order size equal to the EOQ amount? _________________ How could Ranger get closer to EOQ without actually figuring out the economic order quantity? The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________ Page 35 of 81 5. eBookeBookeBookeBookeBookeBook Exercise 8-32 EOQ, Ordering Cost, Carrying Cost, and Total Inventory-Related Cost Ranger Company purchases 17,280 units of Product Beta each year in lots of 864 units per order. The cost of placing one order is $10, and the cost of carrying one unit of product in inventory for a year is $6. Required: 1. What is the EOQ for Beta? _________________ units 2. How many orders for Beta will Ranger place per year under the EOQ policy? _________________ orders per year 3. What is the total ordering cost of Beta for a year under the EOQ policy? $ _________________ 4. What is the total carrying cost of Beta per year under the EOQ policy? $ _________________ 5. What is the total cost of Ranger's inventory policy for Beta per year under the EOQ policy? $ _________________ 6. eBook Exercise 8-34 Safety Stock; Reorder Point Party-Hearty Company makes a variety of holiday party packs. One party pack is for a bachelorette party. It includes a tiara, a pink feathered boa, and a t-shirt emblazoned with "I'm the Bride." Pink feathered boas are purchased from an outside supplier. Each year, 6,500 boas are used, at the rate of 16 boas per day. However, some days as many as 50 boas are used. It takes 6 days from the time that Party-Hearty places an order of boas to the arrival of the order. Required: 1. Calculate the reorder point without safety stock. _________________ units 2. Calculate the amount of safety stock. Page 36 of 81 _________________ units 3. Calculate the reorder point with safety stock. _________________ units 4. Conceptual Connection: As a manager for Party-Hearty, how could seasonality affect the usage of boas? The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________ How could knowledge of the effect of seasonality affect the amount of safety stock carried? The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________ Page 37 of 81 Goal 3: Business Environment: 3.1 Business Ethics Reading assignment 4, Rewarding the team, what are the most important features of a pay plan that is designed for teams, for MGT 6350 by Dr. Shaffer in the summer 2015. Project Requirements: The requirement was to pick a short article, summarize it, and analyze its implications in light of the topics studied in the class of MGT 6350. Merriman, K. (2008). Low-trust teams prefer individualized pay. Harvard Business Review. Detection: In the case, the ethical dilemma detected was the divergence between the fate of top executives of the corporations and that some of the Management team Considers Stakeholders: The main stake holders identified were the company executives, the government Chooses an Action: The paper asserts that the corrective action, i.e. the regulations enacted by the government, and the company ethics committee as well. Comment: The ethical component of the COB goals is poorly developed throughout the program. Page 38 of 81 Ivanildo Fortes Summer 2015 MGT6350Dr. Shaffer West Texas A&M University Page 39 of 81 Reading Assignment 4 When salaries aren’t secret. Harvard Business Review Bolch, M. (2007).Rewarding the team.HR Magazine. Ehrenfeld, T. (1992).The case of the unpopular pay plan.Harvard Business Review. Letters to editor related to the Ehrenfeld article. They start on p. 166 and end on p. 171. Merriman, K. (2008). Low-trust teams prefer individualized pay. Harvard Business Review. 1. Based on the article, Rewarding the team, what are the most important features of a pay plan that is designed for teams. (2 point) The pay plans designed for the teams include the gainsharing program that include tying the performance with the incentives. One compensation plan is aimed at production employees, and it is purely a team-based compensation for the group of 12-20 people, and the workers can earn the bonuses above the given threshold. The company also rewards on the basis of score, and this helps tying performance closely to the incentives; this is done through rating on a team scorecard accessible by any individual employee. 2. Why do members of “low-trust teams” prefer compensation plans that are based on individual performance? (1 point) One of the reason that group compensation plan in the low-trust team does not work is that employees find it unfair if the significant portion of their pay is tied to the performance of team members they don’t fully trust and this sense of unfairness is actually counterproductive. This pitfall can be avoided by making the individualized pays 3. Based on the proposed QFA pay plan, what percent of an employee’s annual salary will be based on improvements in “Quality”? (1 point) Based on the proposed QFA plan, 30% of the annual salary will be based on quality improvements. 4. Summarize the arguments made in the article in favor of implementing the new pay plan. (1 point) The arguments start from the notion that people don’t like their jobs being questioned, let alone redesigned. The vice president addressed that the purpose of the QFA was to reorganize the employees into product-oriented teams to allow and encourage all level employees at all levels to develop products quicker, better and cheaper; but present compensation system has not, he added. The current system pays for the hierarchy, rank, seniority and hours worked, and other less effective standards. This compensation plan will give employees working on teams real incentive Page 40 of 81 for constant improvement and overall excellence. The benefit of the large group’s performance to pay if its members are that it encourages everybody to excel. 5. Summarize the arguments in the article opposed to implementing the new pay plan. (1 point) The head of research, Sid Noble made a first counter argument by saying that he did not like it. The teamwork kick is a motivational happy land that persuades the C-section however it does not square with how the people actually work. The staff members that are managed by Sid Noble are scientists; they are quite good at what they do, and what they do is that they apply their chemical expertise to business strategy. If the scientists are struck in explaining chem 101 to the team members, their work will be done only in the motivational happy land; they will not be able to do what they need to do in their labs. The new plan cannot be applied uniformly to all people, and some people will remain disadvantaged based on their nature of their functioning role. 6. Each of the four commentators is opposed to the new pay plan. Summarize each of the commentators’ main reasons for opposing the new pay plan. (2 points) Maggie Coil established that it is self-contradictory that an organization that value team members empowerment is not having the support of members of the compensation team. There is a need to reinforce employee participation and buy-in before such compensation plan is to be implemented. The participation of the employees who are being affected by this compensation plan should be made. If the people covered by the plan design their own compensation plan like that happened in Motorola, although being viewed as imperfect by many compensation people, this yielded a better overall product because this plan was linked to the business needs. This sort of empowerment, however, the proposed plan can be tested without the payouts. The at-risk pay or the incentive based pay may be conflicted due to cultural prevalence. The employees should understand their relationship. The reason why Donald Berwick disagrees with the compensation plan is that the compensation and reward system no longer adequately support its goals and the proposed plan will only shift the barriers to quality from the level of individuals to the levels of teams. The QFA pay plan is incomplete and inconsistent with TopChem’s search for quality in several critical areas because their formula is customer represented. Tom Nyberg has rejected the compensation plan of Sam Verde’s because the organization will not support a program that it does not understand. The Plan lacks educating, informing and communicating with people; this plan should have reflected the business strategy and sharing the outcomes with employees. According to Michal Beer, Sam Verde put aside compensation and concentrated on creating organizational and managerial context. The people work effectively, or they do not and pay is usually a distraction, and it rarely improves the teamwork. It is still believed that pay redesign can motivate people, and that is simply not true. 7. Why did I assign these articles? That is, what are the lessons to be learned from these articles? (2 points) Page 41 of 81 The reason why these articles have been assigned is to understand the formulation of the compensation plans, especially in the context of teams. These articles discuss the fairness of the different compensation plans and their prevailing in the given firms. Tying the performance with the rewards has been an importantly recognized managerial principle, and this is enforced in most of the compensation plan efficiently or somewhat inefficiently. The conflicts from the compensation plan may affect the performance, and it can become counter product if the employees think their reward system is not just and fair. Bringing teams into remuneration net is a nice idea. However this requires a higher level of people integration, and there should be platforms set for this if this is to be implemented. Further, the mutual trust among team members is very important for the teambased incentives, and if this mutual trust is not present, the group compensation plans will become ineffective. Goal 3: Business Environment: 3.2 Global Business Environment Project Requirements: CIDM 6305- The Scope of MNEs in International management and global business Identification of Global Factors: Through this final group project, clear and detailed understanding is presented of the global business factors involving the expansion of a domestic company into the international realm Analysis of Global Factors This final group project presents clear and detailed information used to analyze the global business factors used by the industry, after many years of being in the domestic arena, has decided to expand to the international market to increased business. Application of Analysis to Management Situation: In this final group project, a clear analysis is presented with regards to the multitude of management situations with valid conclusion and recommendations utilizing appropriate sources and sound theories Page 42 of 81 Comment: This was a wonderful opportunity for me to work with a group of people in making up a fictional company to expand internationally. Throughout this process there were some major issues regarding communication and a particular member not taking on the required work load to share in the completion of the project. This helped me learn the value of communication, teamwork, and dedication to the final goal Page 43 of 81 Ivanildo Fortes Spring 2015 CIDM6305G. Kelly West Texas A&M University Page 44 of 81 The Scope of MNEs in International management and global business 1. How do MNEs maintain their worldwide competitive advantage? Please discuss the major issues of this debate (2 pages). MNEs can take the advantage of the competitive strengths and the ownership of factory in each country is not necessary and tolling agreements with the other companies may result in competitive advantage; the firms need to select a strategy that capitalize the strengths and minimize the impact of weaknesses (Grosse, 2013). The competitive advantage of MNEs must be sustainable, and it should be enough to facilitate the companies to operate effectively in home market; the competitive advantage should be transferable, firm-specific and powerful enough to compensate for the competitive advantages of international operations (Eiteman, Stonehill, Moffett, & Pandey, 2007). The competitive advantage will be based on the suitable interplay of the economies of scale and scope, market expertise, advanced technology, sound financials, differentiated products and competitiveness of their home markets. The economies of scale will reduce the costs whereas market expertise will be related to supply and demand factors. The marketing expertise will involve product, price, promotion and place. The SWOT and PESTLE analysis can help the company to achieve a balance between the company’s strength and external market forces. If we consolidate with previous learning carried out in posting 4, we can have the idea of the national competitiveness, and this is based on basic sub-index of institutions, infrastructure, macroeconomic environment and health and primary education and higher education. Efficiency enhances include labor market efficiency, good market efficiency, financial market development and technological readiness. The innovation and sophistication factors are business sophistication and innovation. These factors provide the ground for national competitiveness, whereas these factors will also reflect how company can place its resources in a given market. The economic Page 45 of 81 factors provide the ground for the investment for a given company; it can house production in one country and may sell the products in another country. The source and destination country for each company will be different and for this purpose, the factors such as interest rate, GDP volume and GDP growth, the inflation rate and the unemployment rate may be considered. A company can gain competitive advantage if it sells its products in US; however production is carried out in China. China can be distant, however if production is housed in the country say South Korea, this will lower the costs, and company can enjoy an increase of 100-300% increase in profits. The direct cost of material and labor will be low; however, labor rates are high in US. Minimum labor rate in US is $7.25 (DOL, 2014), whereas minimum labor rate in South Korea is $4.66. However, the overall production cost will be affected by low prices of direct material. If the direct material in both production and destination company are retrieved from international market, there will be no competitive position available to company, however if one country quarantines, whereas one country obtain from international market at standardized prices, the competitive position can be attained where the prices are low. In contrast to the cost factor, the GDP volume of the growth country is also a matter of concern. The GDP of US is 16,799 (Schwab, 2014), whereas the GDP of South Korea is $1304 billion (TradingEconomics, 2014); these countries are disparate, and they cannot be comparable, however the difference can create white space for potential company that can turn this white space into competitive advantage. The cost of operations in South Korea will supposedly be low, whereas the cost of operations in US would supposedly be high. The GDP per capita of South Korea is low, whereas GDP Per Capita of US is high, therefore the product made in South Korea will have economic characteristics of the size of the South Korean economy, and it will have costs according to the GDP per Capita of South Korea. The GDP per Capita of US is $53,143, whereas GDP of South Korea is $25,997 (WorldBank, 2013). Considering the supply of money in US economy due to high GDP per Capita, the price of saleable product will Page 46 of 81 supposedly be twice and there are examples where companies can attain profit increase of 100200% by global positioning. The sustenance of competitive advantage is necessary, and the company facing harsh competition can have serious vulnerabilities to the competitive advantage. Competitive advantage requires sustainable revenue streams and sustainable low cost of production. If the production costs in US are high, and the salable product price is also high, the company can get a balanced advantage; however if the competition in the US is increasing, competitive advantage will never be the same; the costs will remain same, but company will lower the prices, resulting in decreased profits. This is a situation where outsourcing the production to the developing becomes an attractive option. We have observed in previous studies that FDI is flowing from developed countries to developing countries (FDIReport, 2013), and this may indicate MNEs seeking a sustainability in competitive advantage. A multinational company is a firm, market excluded, which operates in more than one country; the criterion with which the MNEs can be defined is the foreign operations similar to that of its activities in the home market where the company has its head office (Zurawicki, 1979). With the advancement in science and technology and specifically in the ease of travel, communication, and IT, the extent of internationalization is increasing. Previously the MNEs were characterized with the high amount of capital and business investment, whereas the wide geographic coverage; however, the opportunities increased for the smaller and medium companies as the time and technology advanced. MNE is any firm that have outputs of goods or services originating from more than one country, and this definition provides a Page 47 of 81 minimal threshold to MNEs (Rugman, 2013), however it should be noted that a firm that merely exports/imports with no foreign direct investment is not MNE (Peng, 2010). The phenomenon of internationalization was formalized and regulated with the emergence of quality standard organizations such as ISOs that ensured that the quality of the product as per its specification and communicated characteristics. This facilitated the global trade, and the companies were able to sell their products in other geographic locations without having a prolonged recognition for its quality; thus, a neutral working body could endorse the business products and its activities. The effectiveness can be leveraged through global operations for example China is utilized as a major offshore production center due to cheap labor, material and the market demand (Paul, 2008). In order to achieve effectiveness, the profile of the country must be considered, and several factors should be considered such as cultural factors, suitability of the host industry and its innovative or commercial environment and the economic factors. The economic factors will also affect the decisions for internationalization, for example, if the present interest rate in US is 0.25%; this will mean that the economic environment is highly supportive to start new business as the cost of investment i.e. the interest on a loan will be very low. The other factors that can be considered are inflation; which will increase as the economy is triggered, leading to less unemployment, however each country will have its economic policy that will intervene with the economic mechanisms. The companies can opt for internationalization in order to gain a competitive position, managing the production offshore where the production is cheap, and selling back the product to target market where the high prices can be exercised. The offshore production may not be suitable in UK because of high labor costs. However other factors will be considered such as UK could be the hub of that particular industry, and that will make the business to afford the high labor costs because of high revenues expected. Page 48 of 81 The process of internationalization The concept of internationalization is woven around the foreign direct investment, and carrying out business operations in more than one country. The factors that will be involved in the process of internationalization are cross borders, transfer of business in host country and identifying the returns in the form of revenue. The extent of internationalization can vary in different firms, some firms will be more prone to internationalize whereas some firms will be less interested or capable of internationalizing. The research conducted by (Arregle, Naldi, Nordqvist, &Hitt, 2012) focuses on the family controlled firms, and it demonstrates how external involvement affects them in the process of internationalization. This research covers both the theoretical and practical implications of family firms and provides extension to previously existing knowledge. There are mixed evidences for helping and hindering factors pertaining to the process of internationalization. Some of the previous researches indicated that the family firms might avoid internationalization because of the expected loss of socio-emotional wealth whereas some researches established U-shaped relationship between family ownership and international intensity. The research has thoroughly discussed the anatomy of the type of firms e.g. the family-controlled firms or the family-influenced firms and the organizational process and the outcomes in a family firm. The hypothesis behind the research is that the internationalization demands more in terms of managerial, financial and knowledge resources in order to overcome the foreignness of the unknown markets, but as the access to resources can be limited, family firms will have less inclination towards internationalization. There is a difference between the governance structure of open governance and family controlled firms; the governance structure will encompass the ownership and the board. Page 49 of 81 The increase in the external ownership will result in extra resource availability, which can facilitate expansion and internationalization. The governance boards can be created in the family controlled firms to counsel and advice in business operations. However, the involvement of external parties may dilute the control. The other view is that family business benefit more from internationalization because of open channel communication and organic structures. The empirical study was carried out with the population sample of 351 family controlled, Swedish firms. The firms with more than 50% ownership were considered family controlled firms and 2,445 Swedish Small and Medium Enterprises (SMEs) were considered for sample screening. While carrying out this research, 1402 firms responded to the first survey with the response rate of 57.1% and 390 firms were considered eligible as family owned business whereas 351 firms complied with all the variables used in this study. The findings for the data analysis and interpretation revealed various insights in this research, it was found that the presence of non-family board members is not due to the involvement of other non-family members; instead, it was an independent decision of familycontrolled firm. The external ownership is considered a favorable factor for internationalization and it is statistically significant. There is a significant correlation showing that the environmental heterogeneity causes a negative effect on external ownership and international scale. Empirically, the results of this study are supportive to the theoretical logic that external ownership facilitates the internationalization. This study has added an extensive knowledge to previous understanding and insights over the role of family ownership. This research has been carried out in Swedish context; therefore, the results should be carefully interpreted, and should be interpreted in relation to Swedish context. Although the firms Page 50 of 81 selected have the international operations, however the international diversity, geographic spread, and extent of investment could be different. Page 51 of 81 Works Cited Arregle, J.-L., Naldi, L., Nordqvist, M., & Hitt, M. A. (2012). Internationalization of Family-Controlled Firms: A Study of the Effects of External Involvement in Governance. ENTREPRENEURSHIP THEORY and PRACTICE , 1115-1143. Paul, J. (2008). International Marketing: Text and Cases. Tata McGraw-Hill Education. Peng, M. (2010). Global Business. Cengage Learning. Rugman, A. (2013). New Theories of the Multinational Enterprise (RLE International Business). Routledge. Zurawicki, L. (1979). Multinational Enterprises in the West and East. Springer Science & Business Media. Page 52 of 81 Goal 4: Business Integration: 4.1 Decision Making Homework problem set 1, for FIN 6320 by Dr. J, Owens Fall 2014. Project Requirements: In this course the student was required to research the company The Wird Wind Company. Identifies Alternatives: The freedom of choosing the characteristics of the company seemed to be very convenient. But, in fact, it was the most challenging task because the complexity, the applicability, and the likeability of the model to develop would depend of such decision. Moreover, such features were inversely correlated; the more complex the model, the better the grade, but the more uncertain its feasibility. Appropriateness: With the data obtained from random functions (city of origin, destination, type of commodity), and that retrieved from specialized web sites (prices and distances), the system behave as the market requesting the services, eight requests each time. The following task was to define the criteria to select the best deals for the company. Interpretation: There are several managerial issues that are deemed constant in this analysis, market conditions, marketing strategies, organizational variables and the socioeconomic analysis. However, they are sufficiently developed in other projects of this portfolio. The operational aspect in which this work emphasizes is thoroughly addressed because the model works with real data as well as depends on corporate objectives to be considered successful. Comment: This class requires knowledge of Visual Basic. MBA students pursuing the CIS emphasis without programing background should have the opportunity to take a leveling class in VB Page 53 of 81 Ivanildo Fortes Fall 2014 FIN6320Dr. J. Owens West Texas A&M University Page 54 of 81 Home Work Problem Set #1 1. The Wirl Wind Company Preparation of Pro forma Statements a. The income statement Pro forma Income Statement Wirl Wind Company $ Net Sales 3 482 775 Less: Cost of Sales; Fixed Cost 1 350 000 Variable costs 1 449 690 EBITDA 683 085 Less: Operating expenses; Fixed Expenses (Annual Depreciation) 50 000 Variable Expenses 98 716 EBIT 534 369 Less: Interest 86 100 EBT 448 269 Less: Taxes (40%) 179 308 Net Income 268 961 Dividend Retained Earnings Calculations:  Net Sales = 3028500 ∗ (1 + 0.15)  Variable costs = 1260600 ∗ (1 + 0.15) 75 000 193 961 Page 55 of 81  Variable Expenses = 85840 ∗ (1 + 0.15)  Interest : o 82150 Interest Rate = 1200000 ∗ 100 = 6.85% Rate ~7% o Interest = 7% ∗ (1200000 + 30000) = 86100 b. The Statement of Changes in Cash Flow Pro forma Cash Flow Statement Wirl Wind Company Operating Activities $ Net Income Before Dividend 268 961 Add: Sources of Cash; Depreciation & Amortisation 50 000 Increase in Accounts Payables 40 050 Increase in Accruals 43 200 Less: Uses of Cash; Increase in Accounts Receivables - 87 000 Increase in Inventory - 74 400 Net Cash from Operations (1) 240 811 Page 56 of 81 Investment Activities Acquisition of Fixed Assets Net Cash Flow from Investment Activities (2) 50 000 - 50 000 Financing Activities Increase in Bonds 30 000 Increase in Notes Payable 20 250 Payment of Dividends - 75 000 Net Cash flow from Financing Activities (3) - 24 750 Cash Balance at Start 625 000 Cash Increase (1+2+3) 166 061 Cash Balance at End 791 061 Calculations:  Increase in Accounts Payable = 15% ∗ $267000  Increase in Accruals = 15% ∗ $288000  Increase in Accounts Receivables = 15% ∗ $580000  Increase in Inventory = 15% ∗ $496000  Increase in Notes Payable = 15% ∗ $135000 Page 57 of 81 c. The Balance Sheet Pro Forma Balance sheet Wirl Wind Company Assets Current Assets $ $ Cash 791 061 Marketable securities 298 000 Accounts Receivables 667 000 Inventory 570 400 Total Current Assets 2 326 461 Land & Building 625 000 Machinery &Equipement 815 000 Fixtures & Furniture 110 000 Total Gross Fixed Assets Less: Accumulated Deprection 1 550 000 80 000 Net Fixed Assets 1 470 000 Total Assets 3 796 461 Liablities&StockHolders' Equity Current Liabilities $ Accounts Payables 307 050 Notes Payable 155 250 Accruals 331 200 Total Current Liabilities 793 500 Page 58 of 81 Total Long Term Debts 1 230 000 Total liabilities 2 023 500 Stockholders' Equity Preferred Stock 79 000 Common Stock 750 000 Paid-in Capital 601 000 Retained Earnings 342 961 Total Stockholders' Equity 1 772 961 Total Liabilities and Stockholders' Equity 3 796 461 2. Herbert’s Retirement Fund Annual Deposit Payment PMT= $ 5 000,00 Interest Rate i= 0,07 Number of payments N= 15,00 Number of Retirement Years M= 10,00 Option 1: Assuming Ordinary Annuities The Future Value of his savings can be determined by: 𝐹𝑉𝐴𝑛 = 𝑃𝑀𝑇 𝐹𝑉𝐴𝑛 = 5000 (1 + 𝑖)𝑁 − 1 𝑖 (1 + 0.07)15 − 1 0.07 𝐹𝑉𝐴𝑛 = $125 645.11 The Maximum Annual Retirement Benefit he can get is: Page 59 of 81 𝑅𝑒𝑡𝑖𝑟𝑒𝑚𝑒𝑛𝑡 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 = 𝑅𝑒𝑡𝑖𝑟𝑒𝑚𝑒𝑛𝑡 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 = 𝐹𝑉𝐴𝑛 12 $125645.11 = $12 564.51 12 Option 2: Assuming Annuities Due The Future Value of his savings is given by: 𝐹𝑉𝐴𝑑 = 𝑃𝑀𝑇 𝐹𝑉𝐴𝑑 = 5000 (1 + 𝑖)𝑁 − 1 (1 + 𝑖) 𝑖 (1 + 0.07)15 − 1 (1 + 0.07) 0.07 𝐹𝑉𝐴𝑑 = $134 440.27 The Maximum Annual Retirement Benefit he can get is: 𝑅𝑒𝑡𝑖𝑟𝑒𝑚𝑒𝑛𝑡 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 = 𝑅𝑒𝑡𝑖𝑟𝑒𝑚𝑒𝑛𝑡 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 = 𝐹𝑉𝐴𝑑 12 $134440.27 = $13 444.03 12 3. International Tools Inc. a. Computing the Loan Payment 𝑃𝑉 = 𝑃𝑀𝑇 ∗ 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 𝐹𝑎𝑐𝑡𝑜𝑟 𝑓𝑜𝑟 𝑁 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑃𝑀𝑇 = 𝑃𝑀𝑇 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 𝐹𝑎𝑐𝑡𝑜𝑟 𝑓𝑜𝑟 𝑁 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 𝐹𝑎𝑐𝑡𝑜𝑟 𝑓𝑜𝑟 𝑁 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 = 1 − (1 + 𝑖)−𝑁 𝑖 Page 60 of 81 Option 1 Option 2 Option 3 $3 500 000,00 $3 500 000,00 $3 500 000,00 0,10 0,11 0,12 3 4 5 Annuity Factor 2.48685199 3.10244569 3.6047762 Payment (PMT) 1 407 401,81 1 128 142,23 970 934,06 Amount borrowed (PV) Rate (i) Duration (N) Loan Amortisation Schedules Option 1 Periods Loan Balance Payment Interest Principal Loan Balance 1 3 500 000,00 1 407 401,81 350 000,00 1 057 401,81 2 442 598,19 2 2 442 598,19 1 407 401,81 244 259,82 1 163 141,99 1 279 456,19 3 1 279 456,19 1 407 401,81 127 945,62 1 279 456,19 - Option 2 Periods Loan Balance Payment Interest Principal Loan Balance 1 3 500 000,00 1 128 142,23 385 000,00 743 142,23 2 756 857,77 2 2 756 857,77 1 128 142,23 303 254,35 824 887,88 1 931 969,89 3 1 931 969,89 1 128 142,23 212 516,69 915 625,54 1 016 344,35 4 1 016 344,35 1 128 142,23 111 797,88 1 016 344,35 Option 3 - Page 61 of 81 Periods Loan Balance Payment Interest Principal Loan Balance 1 3 500 000,00 970 934,06 420 000,00 550 934,06 2 949 065,94 2 2 949 065,94 970 934,06 353 887,91 617 046,15 2 332 019,79 3 2 332 019,79 970 934,06 279 842,37 691 091,69 1 640 928,10 4 1 640 928,10 970 934,06 196 911,37 774 022,69 866 905,41 5 866 905,41 970 934,06 104 028,65 866 905,41 - b. Which Option should the company choose? Obviously, Looking at the Value of the payments with respect to the firm’s forecasted repayment ability, option 3 might be the best. But when taking into consideration the long-run Cost of Capital determined here by the total interest paid over the reimbursement period, Option 2 seems to be the best. So the company may go in for the loan under option 2. 4. Zheng Sen’s Chinese Take Out a. Calculating the ROE and EPS Earnings Before Interest and Taxes (EBIT) Interest (12%*$8000000) $4 000 000 $960 000 Earnings Before Taxes (EBT) $3 040 000 Tax (40%* EBT) $1 216 000 Net Income $1 824 000 Number of Common Stock Outstanding $2 000 000 Page 62 of 81 Earnings per Share (EPS) Return on Equity (ROE) $0,912 0,114 b. Increase of Debt by $4 000 000 New Value of Debt = $8 000 000 + $4 000 000 = $12 000 000 Earnings Before Interest and Taxes (EBIT) $4 000 000 Interest (12%*$12000000) $1 440 000 Earnings Before Taxes (EBT) $2 560 000 Tax (40%* EBT) $1 024 000 ncre ase $1 536 000 of $2 000 000 500 Net Income Number of Common Stock Outstanding Earnings per Share (EPS) Return on Equity (ROE) c. I $0,768 000 com 0,096 mon stocks at $8 per stock New Value of common stock = $16 000 000 + $ 4 000 000 = $20 000 000 Earnings Before Interest and Taxes (EBIT) Interest (12%*$8000000) $4 000 000 $960 000 Earnings Before Taxes (EBT) $3 040 000 Tax (40%* EBT) $1 216 000 Net Income $1 824 000 Number of Common Stock Outstanding $2 500 000 Earnings per Share (EPS) Return on Equity (ROE) $0,7296 0,0912 5. G eneral Aviation Inc. Page 63 of 81 Calculations:  Inventory: 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 ∗ 100 𝑆𝑎𝑙𝑒𝑠 𝑆𝑎𝑙𝑒𝑠 ∗ 𝐺𝑃𝑀 𝑟𝑎𝑡𝑒 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 = 100 720000 ∗ 38.7 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 = 100 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑒 = 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 = $278 640 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 = 𝑆𝑎𝑙𝑒𝑠 − 𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 = $720 000 − $278 640 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 (𝐶𝑂𝑆) = $441 360 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =  𝐶𝑂𝑆 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 $441360 = $73 560 6 Account Receivables 𝐴𝐶𝑃 = 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝐷𝑎𝑖𝑙𝑦 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 = 𝐷𝑎𝑖𝑙𝑦 𝑆𝑎𝑙𝑒𝑠 ∗ 𝐴𝐶𝑃 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 = ( $720000 ) ∗ 31 360 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 = $62 000  Marketable Securities 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 = 𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − (𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐶𝑎𝑠ℎ) 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 = $159 565 − $143 565 𝑀𝑎𝑟𝑘𝑒𝑡𝑎𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 = $16 000  Total Current Liabilities 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 $159565 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = = $67 900 2.35 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = Page 64 of 81  Notes Payable 𝑁𝑜𝑡𝑒𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 − (𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 + 𝐴𝑐𝑐𝑟𝑢𝑎𝑙𝑠) 𝑁𝑜𝑡𝑒𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 = $67900 − $47600 𝑁𝑜𝑡𝑒𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 = $20 300  Total Assets 𝑆𝑎𝑙𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 $720000 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 = = $256 228 2.81 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =  Total Debt 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 ∗ 100 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 ∗ 𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 = 100 $256228 ∗ 49.4 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 = = $126 577 100 𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 = Balance Sheet Page 65 of 81 General Aviation Inc. December 31, 2013 ASSETS Current Assets Cash $ 8 005 Marketable securities $ 16 000 Accounts Receivables $ 62 000 Inventory $ 73 560 Total Current Assets $ 159 565 Gross Fixed Assets $ 146 663 Less: Accumulated Deprection $ 50 000 Net Fixed Assets $ 96 663 Total Assets $ 256 228 Liablities&StockHolders' Equity Current Liabilities Accounts Payables $ 28 800 Notes Payable $ 20 300 Accruals $ 18 800 Total Current Liabilities $ 67 900 Long term Debts $ 58 677 Total Liabilities $ 126 577 Stockholders' Equity Preferred Stock $ 2 451 Common Stock $ 30 000 Paid-in Capital in Exces of Par $ 6 400 Page 66 of 81 Retained Earnings $ 90 800 Total Stockholders' Equity $ 129 651 Total Liabilities and Stockholders' Equity $ 256 228 6. Tangshan Mining Company a. Computing the NPV Periods After Tax Cashflows in $ Discounting Factor (i=0,12) Discounted Cash flow in $ 1 2 500 000,00 0,89 2 232 142,86 2 2 300 000,00 0,80 1 833 545,92 3 2 200 000,00 0,71 1 565 916,55 4 - 1 300 000,00 0,64 - Total Discounted Cashflow 826 173,50 4 805 431,82 Initial Investment 5 000 000,00 Net Discounted Value - 194 568,18 b. The IRR The IRR occurs when the NPV=0 Considering a Smaller rate i=0.08, the NPV is positive at $78 586.22 as shown below: Periods After Tax Cashflows Discounting Factor (i=0,08) DCF 1 2 500 000,00 0,93 2 314 814,81 2 2 300 000,00 0,86 1 971 879,29 3 2 200 000,00 0,79 1 746 430,93 4 - 1 300 000,00 0,74 - 955 538,81 Page 67 of 81 Total Discounted Cashflow Initial Investment 5 077 586,22 5 000 000,00 Net Discounted Value 77 586,22 By Interpolation, The IRR will be: 𝐼𝑅𝑅 = [0.08 + ( (0.12 − 0.08) ∗ −$77586.22 )] = 0.09 −$194568.18 − $77586.22 𝐼𝑅𝑅 = 9% c. Should the firm make the Investment? With a negative NPV and low IRR compared to the Cost of Capital, the company should not take such an investment. Page 68 of 81 Goal 4: Business Integration 4.2 Strategic Planning Assignment two, For ECO 6306 by Dr. D. Rosa Winter 2015 Project Requirements: What is the difference between structural and cyclical unemployment? In this context, what is the difference between Europe and the US? What is the evidence that Krugman uses to back his opinion? Theoretical Foundation: Krugman’s paper on unemployment, in his textbook,the theoretical structure for international business, according to the author, differentiates the international strategies from the multinational strategies. In addition, it identifies four corporate level strategies: Growth, Retrenchment, Stability and Combination Critical Elements and Feasibility: The corporate structure refers to the use of an international division structure, an international area structure, a global product structure or a global matrix structure (Krugman, 1994). Evidence of Strategy: It analyzes the particular issues regarding their main unemployment issues, as well as upcoming changes for their markets. Implementation: This paper reflects the awareness of such issues that are crucial for the implementation of the proposed strategies. Conclusions, Implications, and Consequences: This document explains the unemployment in Europe, US and the global market. It was observed that the unemployment rate above 4 % remained for 11% whereas it was less than 4% for 8 years. As we look it suggests that we must understand it can have a huge consequence in everybody Comment: As in all other projects, there was not an awareness of the specific traits to which this document was expected to be matched with at the end of the MBA program. Under these circumstances the effort of putting together all the ideas developed to coincide with the COB goals is really worth I Krugman’s paper on unemployment Page 69 of 81 Ivanildo Fortes Winter 2015 ECO6306Dr. D. Rosa West Texas A&M University Page 70 of 81 What is the difference between structural and cyclical unemployment? Krugman’s paper on unemployment http://www.kc.frb.org/PUBLICAT/ECONREV/EconRevArchive/1994/4Q94KRUG.pdf  What is the difference between structural and cyclical unemployment? In this context, what is the difference between Europe and the US? What is the evidence that Krugman uses to back his opinion? According to (Krugman, 1994), cyclical unemployment is the function of aggregate demand. When aggregate demand is high, it will decrease unemployment however this will be accompanied with inflation. When the aggregate demand will be less, the unemployment will increase. The cyclical unemployment rate in any society gravitates around the natural employment rate and the governments of the countries tend to sustain the unemployment at an acceptable rate so that it does not increase the inflation rapidly neither it causes the poverty to increase. Contrary to this, the structural unemployment is related to the irregularities in the labor market and these may originate from the change in thelabor market institutions, demographic shifts, etc.  What is the natural rate of unemployment? Why is it higher/rising in Europe? Again, what is the evidence? Natural rate is a hypothesis which has received acceptance in the 1970s by various academic economists and in US, solid evidences are available in favor of this hypothesis. For a natural rate hypothesis to be true, there should be a connection between unemployment and inflation, for example, if the unemployment rate is low; the inflation will increase. The probable reason for this will be that the people will have more money to spend which will increase the money supply in the given economy and therefore the people will be willing to spend more on the commodities which will in turn increase the prices of the commodities. The natural rate phenomena of unemployment are observable as when the unemployment rate is less below acertain threshold, the change in theinflation rate is positive. The comparison for the change in theinflation rate and theunemployment rate has been made by (Krugman, 1994) for the Page 71 of 81 years 1973-93. It was observed that the unemployment rate above 4 % remained for 11% whereas it was less than 4% for 8 years. When the unemployment rate was above 4%, the negative change was observed for decrease in inflation in 9 years and no change observed in one year, whereas the increase in inflation observed for only one year. It can be argued that the increase in unemployment is consistent with adecrease in inflation for 9 years, whereas no change for one year and only one year when it was not consistent with the unemployment rate. Similarly, when the unemployment rate was less than 4%, there was positive change in inflation for 7 years, no change for 0 years and negative change in only 1 year, and this again shows substantial consistency with the connection between unemployment and inflation. The unemployment rate can also be high and can become part of the natural unemployment rate because of the fear of inflation, and this is termed as hysteresis. The temporary negative shocks to labor demand and workforce may increase their real wages and reduce employment permanently. The hysteresis process can trigger the mechanism that will result in loss of skills and loss of reputation and will be perceived as unemployable. The generous welfare states like European countries will tend to have higher unemployment rates than nations which allow markets to function with agreater degree of thebrutal freedom. The unemployment in Europe is also higher because of their welfare stance where the governments charge high taxes and redistribute them to the poor. The increase in tax rates will force the companies to recruit fewer people in order to maintain the costs and profitability which will reduce the unemployment. Further, the redistribution of tax money as welfare stance will raise the wage rate expectation i.e. reservation wage and the potential employees will become more dependent on the benefits to the unemployed. Due to this phenomenon, all those employees, whose take-home pay is less than the reservation wage, will become unemployed. Page 72 of 81  What is the relationship between the rising unemployment in Europe and the rise in inequality in the US? (What does Krugman mean by inequality?) The unemployment rates in Europe as compared to the US are different. The reservation wage rate is the phenomena which will make the potential workers unemployed if their take-home pay is less than thereservation wage. Further, the generosity of the welfare state will force employers to hire fewer people and will be reducing unemployment from one side whereas the benefits to the unemployed will also prevent the people from being employed. It is also evident that the unemployment rate is different for different occupational groups also and the level of unemployment increase with adecrease in productivity. For example the unemployment for professional and managerial staff was lead in the UK for the given period and it was 5.3%, whereas it was 8.3% for clerical staff, 12.2% for nonmanual, 12.6% for skilled manual and 15.5% for personal services and other manual occupations. According to (Krugman, 1994), if the wages that the market is willing to pay to workers of low productivity fall relative to the average, while the level of benefits keeps up with the average, more worker will The people, whose productivity is high, will tend to be less unemployed as compared to those who are in less productive occupation, and this will increase the inequality in the given society. The wages of the low-paid workers will fall relative to the average whereas the wages of the high-paid workers will rise relative to the average.  What is NOT to blame for either the rise in unemployment or inequality? The wages of the low-paid workers tend to fall whereas the wages of high-paid workers tend to increase relative to the average. The low-paid workers will have tendency to remain unemployed. This type of unemployment will take place when the reservation wage is high enough to be binding, however if the reservation wage is low i.e. in weak welfare state, this will push towards greater inequality as the people will have no option but to except the low wages and this will increase more inequality. The welfare state, therefore, will prevent the inequality and will provide the safety to the people for being employed at unacceptable rate i.e. the reservation rate and they will be provided the benefit from the state. In order to prevent the inequality, the welfare state economies do tent to raise benefits along with average wages, and in many cases to raise them even faster when the inequality of wages is increasing, as a way of leaning against the wind. Page 73 of 81 The welfare state concern should not be however blamed for the increase in unemployment or inequality. The productivity however should be increased, and it has also been adhered by the European Commission White Paper that the industrial policy should support high productivity as it is the long-term unemployment solution. One of the reason that the attempts to bail-out unemployment are avoided is the fear of increasing inflation, however if the productivity is increased, this will lead to long term solution towards unemployment and inflation and both these will be acceptable.  What policies, if any, can be put into place to combat rising inequality/unemployment? European Commission White Paper recommended increase in productivity as it will imply upward shift in the wage curve and thus a fall in unemployment. In addition, the welfare state do tend to increase the benefits in contrast to the average wages and sometimes the increase the benefits as a measure to cut down inequality. From the productivity point of view, (Krugman, 1994) observed that the best unemployment performance was made by the country who is worst in productivity performance whereas other best performance was observed from Japan who is best from productivity point of view. This implies that high productivity growth does not always result in favorable employment performance or vice versa. The policy makers, therefore, should consider unemployment as one-dimensional rather than relating it with other phenomena – both the growth and job creation are the aspects of the competitiveness.  Are you convinced by Krugman’s argument which rules out globalization as the likely cause for high European unemployment and high US wage inequality? From the inequality point of view, the rise in the unemployment rates in the OECD represents a rise in the natural rate of the unemployment and this is due to the welfare initiative of the European countries that attempts to equalize economic outcomes and market forces that are pushing towards greater inequality. According to (Krugman, 1994), globalization changes the rules of the game. Contrary to traditional wisdom, the economic expansion in the globalized country will not result in bottlenecks Page 74 of 81 because firms can always turn up to suppliers abroad. The firms will not raise the price despite the competition in fear that the foreign competitors will capture the market. The workers will constantly be threatened to lose their job to other nations and therefore will not demand high wages. This has affected the natural rate of unemployment and even it has made the whole concept irrelevant. However the emphasis on the international competition ignores the fact that countries like US and UK are producing goods of their own needs only and US exports are only 11% of GDP and it can be said that at least 70% of each economy remains insulated from foreign markets. Therefore, it should be believed that the increased openness of advanced economies does not change the logic of the natural rate hypothesis. In relation to globalization, inequality, and unemployment, there are anumber of ways in which the globalization has imposed competition, and it could adversely affect the economics. The unemployment in most of the OECD countries is not Keynesian and in case of European countries, they do not have consistent trade deficits. Europe has been pushed out of some desirable industries; although the productivity growth has continued. However, productivity and unemployment seem to be unrelated.  Consider Table 2 in Krugman. Whydoes Krugman include Table 2 in hispaper? In otherwords, what point isstrengthened by the data in Table 2 and whyisit crucial to Krugman’slargerthesis? NOW, recreate the data for Table 2 for either the UK or US for the latestyear possible. Has anythingchanged as a result of the Great Recession? Table 2 defines the skills level against the unemployment in UK for the year 1984. In this table, the unemployment has been defined for different occupation group, and the key driver, that has been presented,is the level of productivity accompanied with each occupation. From the data, it can be seen that the occupation group of professional and managerial has the least unemployment rate i.e. 5.3% whereas for clerical, it is 8.0%, for other non-manual, it is 12.2%, for skilled manual 12.6% and for personal services and other manual 15.5%. It can be seen that the level of unemployment rise with the decrease in the productivity accompanied with each job. In the context of the thesis by (Krugman, 1994), this is providing an insight about productivity as a solution of the unemployment i.e. if the productivity is increased, this will result in less unemployment, it will be more favorable for countries in terms of inequality also. Krugman further negated this in the chart 3 where the productivity growth versus unemployment has been covered and this comparison does not reveal any pattern, the worst performer in productivity has least Page 75 of 81 unemployment i.e. US, whereas the best performer in productivity i.e. Japan has also least unemployment in the given group of companies. Recently, the GDP per capita growth of US for year 2012 is 1.6% whereas 1.5% in 2013 (World Bank, 2015), the unemployment rate in 2012 is 8.3% and 7.7% in 2013which does not predict any correlation with growth. For UK, the GDP per capita growth for 2012 is 0% whereas 1.1% for 2012 whereas for unemployment rate in 2012 is 8.4% and in 2013is 7.9% which shows a decreasing trend in unemployment but sustained in the case of US. Page 76 of 81 Thomas Sargent’s paper about the credibility of “Reaganonomics.” http://minneapolisfed.contentdm.oclc.org/cdm/ref/collection/p15334coll1/id/366 http://minneapolisfed.contentdm.oclc.org/cdm/singleitem/collection/p15334coll1/id/366 /rec/1 You might like this: http://www.ispot.tv/ad/7Lj9/ally-bank-predictions-featuring-thomas-sargent  What is a dynamic game? According to (Sargent, 1984), exemplifying football, dynamic game is a game in which the actions of one player are affected by another player, intentionally or unintentionally. A dynamic game is a game where the players are not stationary, the continuously move and they get affected from others as well as they also affect others. Dynamic game is the name of the interplay between the players of the game; the players will be affected by the action of their team players, and a single player will also affect the other players in return and there will be an internal interplay between the teams. This interplay is not limited to the interaction between the team players, but the opposing team players also have an important role to affect the behavior of the other team players. Thus, there is an internal interplay and external interplay and both these factors are mixed in the game. The purpose of all this is to achieve thegoal, either by one team or another team. The players of one team will have strategy, however this strategy will be contingent i.e. depending on the situation either imposed by the players of own team or the factors imposed by other players’ action in order to achieve goals. There will be endless possibilities of actions; however there are certain identified strategies which will be followed by the players of one team. It is important in the dynamic game that the players must coordinate in order to achieve the goal i.e. scoring goal, and complete decentralization, or ‘laissez-faire’ is not a good idea. In terms of economics, the two opposing teams are monetary and fiscal policies in the economy of the world and the country’s policies somehow coordinate with other country’s choices of monetary and fiscal policies, since one country’s choice of monetary and fiscal strategy influences the options open to Page 77 of 81 others provided that there is some freedom to exchange goods and make loans across borders. In a single country, the monetary and fiscal policies are the two opposing teams, the team that better coordinates and achieves the ‘goal’ will win i.e. the policy will be implemented.  Why should we think of monetary and fiscal policy as adynamic game? Who are the players and what are the strategies? The economy of the given country is dynamic therefore it is analogous to the football game that is also dynamic. According to (Sargent, 1984), the fundamental principle, that emerges from the study of a dynamic game, is that agent’s strategies are interdependent. The strategies of each team are interdependent on the players of the team as well as the players of the other team. The situational factors for the selection of strategies is so high at the given point that it is considered dynamic. The actions of the players will also depend on the past and present factors also. These factors are interwoven with each other. There are three players in the dynamic game: the public, the monetary authority, and the fiscal authority. However, sometimes, the public can also play the role of the referee. The fiscal authority makes decisions about public expenditures and the rates at which the taxes are to be collected from the public. The fiscal authority also sets the deficit rate at which the government will not be able to collect the tax down to the spending and then the government will need to borrow cash or print money to meet this deficit. The monetary authority functions will be related to debt management.  When are government budgets inflationary? (Again, think in terms of a game.) The government budgets are inflationary if they are dependent on public borrowing, and the willingness of the public spending can vary which will result in positive variation that can be termed as inflation. The government budgets can be inflationary because of the previously borrowed money that will be required to be paid in the present period and so on, and this will create a spiral effect of inflation. The interest bearing debt are typically inflationary. From the other aspect, the government budgets can be inflationary if the high-powered money is printed. If high-power money is printed, this will result in anincrease in the money supply that will also increase the extent of public borrowing as it will increase the public wealth. Public can Page 78 of 81 lend the money to government up to the level of the availability; however full level lending cannot be made except in rare cases as reported in Mexico in 1982 and 1924 and 1926 in France. If high-powered money is printed, this will increase the money supply, and people will have more money to spend which will cause inflation to occur in macroeconomic terms, however the people may be persuaded for public borrowing purpose and the monetary authority can use this money to coordinate with fiscal authority. The level of public funding will depend on the persuasion i.e. the return rate; the return rate should be equal to that of the private interest rate or higher if the public borrowing is sought as an option to meet the budget deficits. The other option is the tax rate, if the tax rates are increased in the next period to meet the budget deficits, this will decrease the spending, and hence the economy will slow down. This would be the fiscal aspect of the economy.  What are the consequences if the monetary authority does not coordinate with fiscal policy agents? The monetary and fiscal authority must coordinate with each other for the sensible economic movements. If fiscal policy sets high budget deficit, it is the function of the monetary authority to adjust the economic circumstances accordingly. The prime purpose of the coordination is to avoid the budget constraints. If the public borrowing is made, this can only be made up to the level of public wealth and not more, however this can be increased with high-powered money which will inflate the level of wealth, will increase inflation however will provide money to people to spend in borrowings. The level of inflation however may restrict the people to spend money in borrowing as their money will be devaluated over time at the higher rate if the inflation is high, however the return rate on public borrowing should be offered higher than that of the present value of the total interest income. The purpose of the monetary and fiscal policy coordination is the optimization of the economy and favorable growth and these monetary, and fiscal authority actions should be taken to facilitate each other in the total benefit of the economy. In the Ricardian regime, the countries cooperate with each other having similar monetary and fiscal policy features so that they can coordinate their monetary and fiscal policies. Following Page 79 of 81 Ricardian rule, or something close to it has been necessary in order to adhere to thegold standard. The Friedman regime is the opposite of Ricardian Regime where the budget deficit is financed by printing additional base money and interest bearing debt is never issued. In Ricardianregime, the government will make surplus budget in the next period to finance the deficit. The intermediate way between these two regimes is however possible.  Has Sargent done agood job characterizing the interplay between policymakers in the government, the central bank, and the public? The policy makers represent the fiscal authority, and the central bank represents the monetary authority. The policy makers will set the budget, tax revenue and the deficit whereas the monetary policy will manage the budget deficit through its measures such as borrowing money or printing high-powered money. The public borrowing will be dependent on the willingness of the people to spend. Therefore, public will have an important role in this process. The macroeconomic policy of a country is the interplay of these factors and therefore (Sargent, 1984) has done a good job by evaluating the dynamic nature of the economy and exemplifying it as a game or game theory. The stationary view of these factors is not suitable to study the dynamic economy, and there is a need to make continual evaluation of the economy observe the contingent aspects of the economy. These contingent aspects have been theorized by (Sargent, 1984).  What is the connection between policy coordination and credibility? The government budget constraint requires that monetary and fiscal policy be coordinated. The intermediate alternatives to the Ricardian and Friedman’s regime can be followed. when the government de...
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