Internet Problems

1. FOUNDATIONS

Visit the Finance Job Finder at http://www.financejobs.ca or http://sympatico.workopolis.com (click on fast track and then finance) to explore a career in finance. Prepare a one-page report profiling one of the positions listed. Include education and skills required and average starting salary.

2. FINANCIAL BACKGROUND

Large corporations often begin as small businesses, and both share many of the same issues. Visit the Canadian Business Services Centre at http://www.cbsc.org/english and find information on balance sheets, income statements, and other topics discussed in this chapter.
     The Canada Revenue Agency includes information related to business tax issues and offers tax tips, information on how to avoid costly problems, important due dates, financial guidance and resources, laws and regulations, and statistical data about small businesses. Visit the agency at http://www.cra-arc.gc.ca/tax/business/smallbus_e.html
     Finally visit the Ontario Small Business Tax Help site at http://www.on.ca/mbs/english/government/business.html, a representative provincial site targeted at small business.

3. FINANCIAL INFORMATION AND ANALYSIS

Update the financial information and analysis for Danier Leather Inc.

4. THE MANAGEMENT OF WORKING CAPITAL

Go to the Business Owner's Toolkit at http://www.toolkit.cch.com for information on how to manage accounts receivable more effectively. First click on Managing Your Business Finances, then on Credit and Collections. Read the introduction and the following sections: Building a Credit Policy That Works, Improving Your Collection Cycle, and Accounting for Bad Debts. Prepare a one-page report summarizing what you found.

5. SOURCES OF SHORT-TERM FINANCING

There are no Internet Problems available for this chapter.

6. FINANCIAL PLANNING

The Business Toolbox at http://www.edgeonline.com/btoolbox.stm offers a series of comprehensive training modules that will help you learn how to market, manage, promote, and grow your business. Scroll down to the section on Financial Management and read the sections on How to Create a Cash Budget and How to Analyze a Cash Budget. Why is it so important for businesses to prepare a cash budget monthly? What is the purpose of comparing the monthly cash budget to the actual figures reported?

7. THE FINANCIAL SYSTEM AND INTEREST

Go to http://www.nyse.com for a tour of the New York Stock Exchange.
a.     Go to About the NYSE. Click on Education and then Educational Publications. Look at Chapter 1, The NYSE: A Driving Economic Force, and Chapter 2, The Trading Floor. How many seats are there on the NYSE? How much does a seat on the exchange cost? Write a paragraph or two describing the job of a specialist.
b.     Go back to the home page and click on Regulation and Market Surveillance. Write a paragraph or two describing Stock Watch.
c.     Get an international overview of the exchange. Print the listing of non-U.S. listed companies.

Let's look at Workbrain Corporation
a.     Go to http://www.sedar.com and click on Company Profiles. Under Public Companies, choose "W" and then scroll down to Workbrain Corporation. On the company profile page, scroll to the bottom and click on View this public company's documents. Search for the preliminary and final prospectuses, and compare their front pages. List the differences between them.
b.     Now go to http//www.tsx.ca/, type in WB and click Get Quote. On the far right-hand side of the screen you will see detailed information for the company. Click on 5 yr. (m) under the charts and view the price performance information. Look at this chart alongside some of the press releases you saw in the Sedar site. Can you see any relationship between price and news releases?

8. TIME VALUE OF MONEY

Let's assume you will retire at age 65. Use the cool million (CDN) calculator at http://www.dinkytown.net/java/ca.htmli-bin/retirement.pl to calculate how much you would need to save each month if your goal is to accumulate a C$1 million nest egg and you start saving at
     a.   age 30
     b.   age 40
     c.   age 50

9. THE VALUATION AND CHARACTERISTICS OF BONDS

DBRS Investors Services at http://www.dbrs.com provides information to help investors select bonds more prudently. Click on Research and Rating Reports and choose two issues that have recently undergone a change in bond rating. Write a short report in each issue explaining how the rating was changed and why.

10. THE VALUATION AND CHARACTERISTICS OF SHARES

The Canadian Tire Corporation provides an excellent 10-year summary of financial data at http://investor.relations.canadiantire.ca (page 78 and 79 of the 2003 annual report). Use the constant growth model to estimate the value of Canadian Tire Class "A" Non-voting. To calculate the dividend growth rate, calculate the average dividend payout ratio over the past 10 years, use this to determine the plowback ratio. Use this plowback ratio to determine the internal growth on equity (that is plowback ratio multiplied by the average ROE). To calculate the required rate of return by shareholders, calculate the average ROE over the past 10 years. How does the value from the model compare to Canadian Tire's current market price?

11. RISK AND RETURN

Visit the AIM Trimark website at http://www.aimtrimark.com/AIM/Retail/InvestorEd/investing_basics_index.cfm. Click on "Think long term, invest long term." What is the range of possible returns when the holding period is only one year? How does the range of possible returns change when the holding period is extended to 10 years and to 20 years? What does this data suggest with respect to how risky investing in the stock market really is? What strategy can an investor use to reduce the risk of investing in common stocks?

12. CAPITAL BUDGETING

For a comprehensive application of the capital budgeting process (Alberta Government Telephone) go to http://www.crtc.gc.ca/interfil/august96/cr313s1k.doc.
     Write a one-page summary of the process described. Describe each of the investment tools discussed. Describe the methods suggested for dealing with risk.

13. CASH FLOW ESTIMATION

Do a cash flow sensitivity analysis on some problems of your choice at the end of the chapter. (You can download the spreadsheet template for Microsoft® Excel® on the web page.) The spreadsheet template can be customized to meet your needs. For additional information, click on the link for Some Cash Flow What Ifs at http://www.toolkit.cch.com/tools/cfsens_m.stm.

14. RISK TOPICS AND REAL OPTIONS IN CAPITAL BUDGETING

There are no Internet Problems available for this chapter.

15. COST OF CAPITAL

Chapter 15 Visit the Teach Me Finance site at http://www.teachmefinance.com. In Cost of Capital:
     a.   Are retained earnings free money? Why or why not?
     b.   What methods can be used to calculate the cost of retained earnings?

16. CAPITAL STRUCTURE AND LEVERAGE

Visit http://www.globeinvestor.com and click on The Top 100. Click on Top Tech companies and note the top three wireless companies. Click on the Company name of each to get its ticker symbol. Do the same for companies involved in gas turbines. Next visit Sedar and click on "Company Profiles" and view the companies' public documents (most recent annual financial statement).
     Use each company's balance sheet to calculate its use of debt and equity financing. For each company, list what percentage of its total assets is financed from debt and what percentage from equity.
     Compare the use of debt versus equity financing both within each industry and between the two industries. What conclusions can you make from reviewing this data? Do they make sense?

17. DIVIDENDS, STOCK SPLITS, AND SHARE REPURCHASES

Using appropriate websites, determine earnings per common share and dividends per common share for the last five years for Royal Bank, Power Corp, Brascan, Alcan, and Encana. Comment on the dividend pattern for each company and the possible dividend policies behind those patterns.

18. OPTIONS

Look at the listings for call and put options on the S&P Canada 60 Index (Montreal Exchange at http://www.m-x.ca/cotes_en.php?query=SXO). The index value is given in the header bar above the call and put listings. Compare the strike prices and the number of contracts (called open interest) that have been written. Which are there more of: calls or puts? Of the contracts listed, are there more puts or calls that are "in the money"? For the "in the money" options, are there more short-term or long-term? Given the present state of the economy, how do you think the investors in these options feel-more optimistic (more call options) or pessimistic (more put options)?

19. CORPORATE RESTRUCTURING

Using a search engine such as Yahoo or Google, look up bankruptcy and find out how many business bankruptcies occurred in Canada last calendar year. Then try to break down these bankruptcies by type (retail, restaurant, etc.). Finally, find out whether the trend for bankruptcies (both in absolute number and as a percent of businesses in existence) is up or down.

20. INTERNATIONAL FINANCIAL MANAGEMENT

1.     Using the foreign exchange rates presented in Table 20.1, determine the number of Canadian dollars required to buy the following amounts of foreign currencies.
     a.   10,000 euros
     b.   200 rupees
     c.   200,000 yen
     d.   5, 000 U.S. dollars
     e.   25,000 yuan
     f.   15,000 baht
     Using http://fx.sauder.ubc.ca or a comparable exchange rate site, obtain and recalculate the currency exchanges at today's rates. How do these figures compare to those in Table 20.1? Has the dollar strengthened or weakened against these currencies?

Use http://www.x-rates.com or a comparable exchange rate site for Problems 2 through 6.

2.     Identify the graph of the indirect exchange rate between the Canadian dollar and Japanese yen for the past 120 days.
     a.   When was the dollar strongest against the yen? When was it the weakest?
     b.   If you had converted $1,000 into yen when the indirect rate was the highest and converted back when it was the lowest, what return would you have made on your investment?
     c.   Use the EAR formula on page XXX to convert the rate calculated in part (b) into an annual rate.

3.     Analyze the exchange rate between the Canadian dollar and the Mexican peso. Record the monthly average for the indirect exchange rate over the last 18 months.
     a.   What has the general trend been for the exchange rate between these two currencies?
     b.   If you had invested $1,000 in Mexican pesos at the average rate at the beginning of the period and held that currency until now (your most recent rate), how much would your investment be worth in Canadian dollars?

4.     Use today's exchange rates between the Canadian dollar and the British pound and between the Canadian dollar and the U.S. dollar to calculate the cross rate between the Canadian dollar and the British pound. Look up that rate to see if your calculation was correct.

5.     You just purchased a new sound system for $1,542.75. Based on current exchange rates, how much would the system have cost in:
     a.   Brazilian reals
     b.   Danish kroner
     c.   Polish zlotych
     d.   Swiss francs

6.     You are the CFO of Symantics Corp., which is considering investing $40 million in a plant in India. You have heard that there has been quite a bit of movement in the exchange rate between the Canadian dollar and the Indian rupee in the past few years. Before investing the firm's money, you want to understand the exchange rate risks involved.
     a.   Record the indirect exchange rate between the rupee and the dollar for each month of the last three years.
     b.   During which periods has the dollar been strengthening against the rupee and during which periods has it been weakening?
     c.   Assume Symantics builds the plant when the exchange rate is 45 rupees to the dollar. Describe the financial impact of an exchange rate movement to 40 rupees to the dollar on Symantics. Describe the impact of a movement to 50 rupees to the dollar.

Use http://www.bmo.com/economic/regular/fxrates.html or a comparable exchange rate site for Problems 7 through 9.

7.     Record the current, one-month, three-month, and six-month forward exchange rates for the British pound, the U.S. dollar, the Japanese yen, and the euro. Based on these data, does it appear that the dollar will be strengthening or weakening against each of these currencies in the near future?

8.     You are the international business manager for Kaltec Inc., a moderate-sized electronics firm. You purchased a machine from a foreign supplier six months ago for $4 million under terms that called for payment six months later in the supplier's home currency. At the time, you were worried about exchange rate losses and entered a forward contract for delivery of the necessary currency in six months' time at an exchange rate 0.5% more expensive than the current spot rate. It's now time to make the payment, and the spot exchange rate is virtually the same as it was six months ago. Use the information from the previous problem to determine how much better or worse off Kaltec is because you entered into the forward contract. Compute this amount assuming the purchase was to be paid in:
     a.   British pounds
     b.   U.S. dollars
     c.   Japanese yen
     d.    Swiss francs

9.     Assume Kaltec in the previous problem is substantially worse off for having made the forward foreign exchange contract. Should your boss be upset with you for having made the hedge? (Use words only.)