FIN301 Case 1 Travis G James Module 1

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Module 1 Case Travis G James-Primas Trident University International FIN301 Principles of Finance (2023NOV06FT-1) Professor Dr. Charles McManus November 18, 2023

Trident University FIN301: Principles of Finance Module 1: Case Name: Travis G. James Question 1: In your small business you have a finance department with a CFO, controller, and treasurer. For the following scenarios, explain which of these three financial executives would be the most likely to work on the issue based on the descriptions of the roles of the CFO, controller, and treasurer from Peterson and Fabozzi (2010) from the required reading. A. You suspect that a lower-level employee has embezzled around $50,000 over the last three years and you want to try to find out who based on past financial records. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller? Why? ANSWER: The controller would be the person who would investigate the issue. One would think, the CFO would step in, but the controller would have complete access as well. Understanding that the controller is responsible for auditing accounts. The controller is the one who investigates the allegedly embezzlement case. Although, the controller oversees the case, they are still assisted by the CFO if needed. Lastly, once the controller investigates the situation and identify the problem, the results are reported to the CFO. B. Your chief marketing officer wants to take out a large loan to finance a major advertising campaign that he claims will bring in large sums of new profits over the next few years. However, your chief operating officer wants to take out a large loan to purchase some new equipment and machinery that she claims will save your company a lot of money over the next few years. You would like to see some estimates about which of the two projects will be most likely to increase profits enough to be able to pay back the loan. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller? Why? ANSWER: In this case, the chief marketing officer and also the chief operating officer both wants to take out a loan that would benefit the company in different ways. The chief marketing officer Once the money for a new major advertising campaign that would benefit the company wow the chief operating officer wants the money for newly updated equipment and machinery that would benefit them for years to come. Because this is a issue dealing with funds, the treasurer would be more than likely the person to handle the financing issue. The treasurer is the one who oversees the finances of the company, closely reviews the policy and procedures, and financial reporting.

In the end they advised the board on the financial plan, while implementing new fundraising strategies. Once all of the benefits have been taken in account, the plan that has the higher benefit would be considered. Question 2: Explain whether the following assets are a real asset or a financial asset. Explain your reasoning using the definitions of real vs. financial assets. Refer to Chapter 2 from the Peterson and Fabozzi (2010) text. A. A certificate of deposit at your local bank ANSWER: ☐ ☒ Explain: “ Although they are lumped together as tangible assets, real assets are a separate and distinct asset class from financial assets. Unlike real assets, which have intrinsic value, financial assets derive their value from a contractual claim on an underlying asset that may be real or intangible, (James Chen, May 21, 2021).” All assets hold value to a company or an individual, which could be converted into cash. Financial assets are considered liquid property that has value, stocks and bonds or bank accounts. So, with this understanding, a certificate of a deposit at your local bank would be a financial asset. B. A two-bedroom house ANSWER: ☒ ☐ Explain: R eal assets are normally the physical assets. Financial assets would include things like stocks, bonds, and cash. While real assets would include things like family homes, commodities, and infrastructure.

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“Types of Real Assets Land and Property Land and property are real assets that include residential and commercial real estate . Land and property provide a tangible asset with a long lifespan and the potential for capital appreciation and steady cash flow from rental income. Infrastructure Infrastructure is a real asset that includes transportation systems, utilities, and public works projects. Infrastructure provides a tangible asset with a long lifespan and the potential for steady cash flow from user fees or government contracts. Natural Resources Natural resources are real assets that include energy, minerals, and timberland. Natural resources provide a tangible asset with the potential for capital appreciation and steady cash flow from resource extraction. Collectibles Collectibles are real assets that include art, antiques, and other items that have value beyond their functional use. Collectibles provide a tangible asset with the potential for capital appreciation and are often used as a hedge against inflation. ( True Tamplin, BSc, CEPF, July 14, 2023) C. $50,000 worth of bonds from an airline company ANSWER: ☐ ☒ Explain: In this Scenario, $50,000 worth of bonds, from an airline company would be considered a financial asset. Financial assets are instruments that possess value, such as direct investment, bank loans, stocks, and bonds etc. “Stocks and bonds Stocks represent ownership in a company; you might also hear them referred to as equities or shares. The value of stock can fluctuate based on a variety of factors, including the company's financial performance, industry trends, and overall market conditions. Stocks are often considered to be a more volatile investment than bonds, but they also offer the potential for

greater returns over long periods of time — especially when you invest in a company that ends up becoming a rising star of sorts. Bonds are a type of debt instrument. When you purchase a bond, you're lending money to the issuing entity, which can be a corporation, government agency or other organization. Bonds typically pay a fixed interest rate, and you may receive interest payments periodically when you hold the bond. Once the bond matures, you receive the bond issuance back. Bonds are generally considered a more conservative investment than stocks because they're less volatile and offer a more predictable return. However, they generally offer lower returns.” (The Empower, The Currency, May 05, 2023).” D. Ownership of a copyright to a hit song ANSWER: ☐ ☒ Explain: In this scenario, ownership of a copyright to a hit song would be an intangible asset, that has monetary value that would represent highly potential income revenue. This asset doesn't physically exist, but it has value. A copyright is considered a legal right given to the creator to protect they are original word from being duplicated or sampled without their permission. “Why Are Music Royalties Considered an Attractive Asset Class? “I think everyone realized that publishing catalogs were assets you could finance, like a building. And the forecasts the investment banks are making for the number of streaming subscribers in the next 10 years are extraordinary. So, investment bankers, hedge funds, private equity – they all look at this as an asset class.” — Martin Bandier, former CEO and chairman of Sony/ATV Music Publishing, (Jim Stone, May 23, 2019).” Question 3: Complete financial research on Facebook and General Motors using a web page such as investing.com or finance.yahoo.com or Bloomberg.com. Based on their stock’s P/E ratios, dividend yields, and other information, compare and contrast these two stocks. How

would you classify these stocks: growth stock, a value stock, or an income stock? Explain your reasoning using both concepts from the background readings as well as any information you find on these two companies. Your answer should be about 100–150 words and can use graphs or calculations. ANSWER: Based on the provided information, we need to compare Facebook and General Motors based on their P/E ratios, dividend yields, and other information to classify them as growth stocks, value stocks, or income stocks. To determine this classification, we need to consider the following: 1. P/E Ratio: The P/E ratio indicates the price investors are willing to pay for each dollar of earnings. A high P/E ratio suggests that investors have high expectations for future growth, making it characteristic of growth stocks. A low P/E ratio is associated with value stocks. 2. Dividend Yield: Dividend yield represents the annual dividend payment divided by the stock price. Stocks with higher dividend yields are generally considered income stocks, as they provide regular income to investors. Considering these factors, let's compare Facebook and General Motors: - Facebook: Facebook is known for its rapid growth and innovation in the technology sector. It has a high P/E ratio, indicating that investors have high expectations for its future growth. However, Facebook does not typically pay dividends, which is more common for growth stocks. Based on these factors, we can classify Facebook as a growth stock. - General Motors: General Motors operates in the automotive industry and has a lower P/E ratio compared to Facebook. It also pays regular dividends, providing income to investors. These characteristics suggest that General Motors can be classified as both a value stock and an income stock. In summary, based on the P/E ratio, dividend yields, and the nature of the companies, Facebook can be classified as a growth stock, while General Motors can be classified as both a value stock and an income stock.

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