EFFICIENT CAPITAL MARKETS AND CAPITAL STRUCTURE The CFO of Baldwin Corporation, Gregg Williams is meeting with the company’s board of directors to discuss the possible effect of the company’s capital budgeting project on the stock price. Gregg believes that when the NPV of $159,624 is released in conjunction with existing information on the company, the stock price will increase by $0.15 given that the company has 1,000,000 shares outstanding. Gregg believes that all investors are rational and will make investment decisions after analyzing all available information. Gregg’s belief is consistent with the theory of efficient capital markets, which he studied at the graduate school. The theory of efficient capital markets holds that stock prices reflect all available information. Gregg gave the implications of the theory as follows: Because information is reflected in prices immediately, investors should expect to obtain a normal rate of return. Information reflects so quickly in stock prices that no investor can gain competitive advantage over other investors. Prices of stocks will only change if new information becomes available.There are many market participants such that no one participant controls the marketFirms should expect to receive fair value for securities that they sell. Fair means that the price they receive from selling securities is the present value of cashflows that the asset is expected to generate. Thus, valuable financing opportunities that arise from fooling investors does not exist in efficient markets. A board member, Jon Milosvoski has drawn Gregg’s attention to three forms of market efficiency namely weak form efficiency, semi-strong efficiency, and strong form efficiency. Mr. Milosvoski explains that under each form, different types of information are assumed to reflect in stock prices. Another board member, David Jefferson, says that new research studies are emerging in behavioral finance that question the rationality of investors. Mr. Jefferson explains that investors do not act rationally all the time in the investment decision making process so the market cannot be efficient. The results of the studies indicate that investors are prone to heuristics-driven biases such as overconfidence, decision regret, familiarity, conservatism, representativeness and house-money effect. The meeting was postponed to next week when the board will meet to finish the discussion on the efficient markets and consider capital structure of Baldwin Inc. The board chairman wants you to address the following questions before the next meeting. 1. What different types of information are assumed to reflect in the company’s stock price? Explain the different types of information under each form of market efficiency. 2. An individual investor, Ms. Jones wants to invest in Baldwin Inc. She has gathered data on the company from the current issue of the company’s annual financial report, newspapers and press release of the capital investment project. Assuming the market is semi-strong efficient, can Ms. Jones earn above-average returns using this material public information? 3. Ms. Jones is consulting with her financial advisor, Robert Carl. Robert believes that stock prices move in trends. He also believes that new information does not quickly get to all investors and that it takes time to analyze and act on the new information. He tells Ms. Jones that if investors take time to analyze the information and react, and possibly overreact to it, prices may always deviate from fair market values. Does Robert Carl believe in market efficiency? Explain why. 4. Determine whether the following statements by Gregg are correct or incorrect about efficient market hypothesis: a. it implies perfect forecasting ability (correct or incorrect) b. it implies that prices reflect all available information (correct or incorrect) c. it implies an irrational market (correct or incorrect) d. it implies prices do not change (correct or incorrect) e. it results from keen competition among investors (correct or incorrect) f. investors can reap abnormal profit consistently (correct or incorrect) 5. Explain how behavioral biases of overconfidence, regret, representativeness, and familiarity can affect investment behavior of investors of Baldwin Inc. 6. Given the board meeting next week on capital structure of the company, what are some of the agenda to be discussed at the meeting? 7. Baldwin Inc. wants to determine the optimal capital structure that will maximize the value of the company. Various capital structures have been analyzed as follows: Debt Equity WACC ROE 0% 100% 15.80% 4.60% 20% 80% 12.50% 4.80% 30% 70% 10.50% 5.80% 40% 60% 9.20% 6.10% 50% 50% 12.30% 8.20% 60% 40% 8.50% 15.30% 70% 30% 12.85% 10.10% 80% 20% 13.50% 12.00% 100% 0% 14.00% 13.60% What optimal capital structure do you recommend for Baldwin Inc. and why?

As the office administrator, you use Excel to maintain personnel data and summarize cash flow. You are finalizing the Personnel and Cash Flow worksheets for the current week. Begin on the Personnel worksheet by cutting the contents of the range B1:B2 and pasting them into the range A1:A2.Adjust the width of column A using AutoFit.Change the width of column B to 16.00.Enter the values shown in Table 1 into the corresponding cells in the range B14:C16.Enter albert.luna@cengage.com in cell D5. Select the range D5:D16, and then use the Flash Fill button (using the Fill drop-down arrow in the Editing group on the Home tab) to automatically enter codes into the remaining cells in the range. (Hint: You must use the Flash Fill button to properly receive credit for this step.)Change the width of column D to 36.00.Enter the word Total in cell A17. In cell B17, create a formula using the SUM function to determine the total salary paid by Tabula Insurance Agency by totaling the values in the range B5:B16. Copy the formula you created in cell B17 to cell C17.Enter Number of Employees in cell A19.In cell B19, create a formula using the COUNT function to determine the number of people employed by Tabula Insurance Agency by counting the values in the range B5:B16.Enter the text Average Commission in A21.Switch to the Cash Flow worksheet. Change the orientation of the Cash Flow worksheet to Landscape.In cell A2, change the cell content to Cash Flow: April 4-10, 2021 (instead of just reading "April 4-10, 2021").Select the range A4:E4 and the nonadjacent cell G8, and then increase the font size of the cells to 12 point.To better display the content, manually change the height of row 3 to 8.00. (Hint: Do not use AutoFit.)In cell B7, enter a formula without using a function to determine the profit generated from auto insurance policies by subtracting auto expenses (cell B6) from auto sales (cell B5) for the week of April 4-10, 2021. Copy the formula you created in cell B7 to the range C7:D7.After determining the total profits generated by each store, you are now interested in calculating the total sales, expenses, and profits across all types of insurance sold. Select the range E5:E7, and then apply AutoSum to calculate the totals for these categories across all three types of insurance.Since you just edited the worksheet, the content in cell A9 is no longer accurate. Click on cell A9 and clear its contents.Apply the Wrap Text formatting to cell G8.Adjust the Zoom level of the Cash Flow worksheet to 130%.After reviewing the Personnel and Cash Flow worksheets, you typically generate some additional data for accounting. To create a placeholder worksheet for this data, insert a new worksheet in the workbook, rename the worksheet Accounting, and if necessary, move the new worksheet after the Cash Flow worksheet. Table 1: Data for the Range B14-C16 B C 14 846.15 23.22 15 846.15 5.19 16 923.08 0.00

"Fraud" Please respond to the following: Research an example of contractor fraud from a news story from a reliable news outlet. Briefly review the facts and the outcome of the case. Based on the reading and legal issues, was justice served in your example? Why or why not? What other issues may have been present that were not pursued by the government