FINANCIAL MANAGEMENT: THEORY AND PRACT
15th Edition
ISBN: 9781305632455
Author: BRIGHAM E. F.
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 7MC
Summary Introduction
Case summary: TSI, a mid-sized company has hired a financial analyst. The company creates the exotic sauces from imported fruits and vegetables. The CEO of the company has asked the financial analyst to prepare a report on enterprise risk management so that firm’s executive may gain knowledge about enterprise risk management as no one knows about it in the organization.
To determine: The forward contract and also the way by which it can be used to manage the foreign exchange risk.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are an independent consultant hired by Penmen Groceries, and they are exploring options to modernize their accounting information system (AIS). They are looking for an audit company to help them, so your manager has requested a client letter explaining how vulnerabilities can impact an organization's AIS and why an IT environment is crucial to financial reporting. Specifically, your manager is focused on phishing, malware, and ransomware, as your manager has been reading a lot in the news about these vulnerabilities causing problems for organizations.
This milestone will help you with Project One, where you will be required to determine the specific risks and efficiencies of an updated computerized accounting information system.
Directions
In this assignment, you will write a client letter that explains the impact of vulnerabilities on an organization 's AIS and the importance of strong technology controls in the IT environment.
Specifically, you must address the following rubric…
As a newly minted MBA, you’ve taken a management position with Exotic Cuisines, Inc., a restaurant chain that just went public last year. The company’s restaurants specialize in exotic main dishes, using ingredients such as alligator, buffalo, and ostrich. A concern you had going in was that the restaurant business is very risky. However, after some due diligence, you discovered a common misperception about the restaurant industry. It is widely thought that 90 percent of new restaurants close within three years; however, recent evidence suggests the failure rate is closer to 60 percent over three years. So, it is a risky business, although not as risky as you originally thought.
During your interview process, one of the benefits mentioned was employee stock options. Upon signing your employment contract, you received options with a strike price of $40 for 10,000 shares of company stock. As is fairly common, your stock options have a 3-year vesting period and a 10-year expiration,…
Assume that have recently been appointed as a member of the Financial Risk Management team of your organisation. For the purpose of this research paper, select a company of your choice, in Zambia or an international firm and evaluate how well the company manages its financial risk by addressing the following issues.
Identify and explain the main financial risks the company is exposed to and explain the methods you used to identify the financial risks.
In reference to the financial risks identified part (1) above, make recommendations to the company whether it should hedge 100% of the risks, or part of the risk or none at all. Give justification for each of your recommendations.
Assume you recommend some hedging in part (2) explain the specific hedging strategies (internal or external) the company will apply to mitigate the specific financial risks.
Chapter 23 Solutions
FINANCIAL MANAGEMENT: THEORY AND PRACT
Knowledge Booster
Similar questions
- The CFO of PKD Corporation is very uncomfortable with its current risk exposure related to the possibility of business disruptions. Specifically, PKD is heavily involved in E-business, and its internal information systems are tightly interlinked with its key customers’ systems. The CFO has estimated that every hour of system downtime will cost the company about $10,000 in sales. The CFO and CIO have further estimated that if the system were to fail, the average downtime would be one hour per incident. They have anticipated that PKD will likely experience 50 downtime incidents in a given year due to internal computer system problems and another 50 incidents per year due to external problems—specifically, system failures with the Internet service provider (ISP). Currently, PKD pays an annualized cost of $150,000 for redundant computer and communication systems, and $100,000 for ISP support just to keep the total expected number of incidents to 100 per year. Required: Given the…arrow_forwardAfter finishing your accounting degree, you joined an accounting firm. This is a medium-size accountingfirm with a reasonable range of clients. You are in an engagement meeting with one of your clients, andyour client's management raises some concerns. In particular, the management is concerned that theaudit tests that you perform will disrupt operations. Your client has recently implemented a datawarehouse. The management suggests that you draw the data for analytical reviews and substantivetesting from the data warehouse instead of the operational database. Further, the management pointsout that operational data are copied weekly into the data warehouse, and all data you need are containedthere.Required: Based on the given scenario, outline your response to the management's proposal and mentionany concerns you might have.arrow_forwardYou have been hired as consultants to research, report and present to a senior management team interested in what is currently happening in the Caribbean market, over the last three years. The senior management team would like guidance based on the two scenarios presented below. This guidance should support their strategic policy decisions over 2-3 years. You are advised to make assumptions where necessary, based on your expertise as consultants in credit analysis and lending.Scenario 1: Gateway has a strong history of serving customers as Corporate Investment Managers in St.Lucia, St.Vincent and the Grenadines, St. Lucia and Trinidad. It is interested in strengthening its relationship with Entrepreneurs in these countries by providing lending services. Gateway recognizes the need and demand for financing of Small Medium Enterprises. However, the Gateway management team realized that before it could scale up the capacity of its financial services department and introduce new lending…arrow_forward
- The SEC is trying to get companies to notify the investment community more quickly when a "material change" will affect their forthcoming financial results. In what sense might a financial manager be seen as "more ethical" if he or she follows this directive and issues a press release indicating that sales will not be as high as previously anticipated? A manager at a "Check Into Cash" business (see Focus on Ethics box on page 192) defends his business practice as simply "charging what the market will bear." "After all," says the manager, "we don't force people to come in the door." How would you respond to this ethical defense of the payday-advance business? Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and nonquantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issue's bond…arrow_forwardSuppose you are a part of a group of students from a prominent university and were sent out as a team to work with a leading merchandizing company as a part of a work experience program. The team having been introduced to the general manger was told that the Accountant who normally prepares the financial statements has suddenly resigned and there is no one available to prepare the company’s financial statements which are now due. As aspiring university students, you and your group members have expressed an interest in taking on the task. As a group, you are required to collaborate and analyse the problem at hand then apply the accrual basis of accounting in the preparation of the company’s financial statements. See attached Unadjusted Trial Balance and instructions to complete question.arrow_forwardAccenture (which spun off of former accounting firm Author Anderson) wrote an article entitled "Meet the Finance 2020 Workforce" which suggests that accountants will need to embrace new financial roles to analyze new business opportunities and the ways firms can profit from them. Consider the internal and external business processes and give ideas of how they might allow the accountant to analyze business opportunities and how the firm might profit from them. You can use examples from the text or other companies in the news.arrow_forward
- Mr. Salim is the owner of an audit firm who audit the financial statements of the companies by charging fee. Lulu hypermarket is one of their old clients. Last month lulu hypermarket distributed discount coupon to their customers and it was a coincident that external auditors were also there, and they also got some coupons. Which of the following threat do you think can arise in this situation? a. Familiarity threat b. None of the options c. Self-interest threat d. Self-review threatarrow_forwardThe operation manager of Marcoba Bhd is seeking your advice on his company's request for a computer software to be used in managing the sales of the company. He is unsure of how to obtain the computer software but realizes that different types of acquisition will impact the company's financial statement differently. He is considering the following possibilities: a) Making a purchase of the computer software externally. The quotation that he has received includes packages for payroll and general ledger. b) Making a purchase of a computer software that can be incorporated into a sales system that the company will develop. c) Signing a contract with independent programmers to develop a computer software that will specifically cater for Marcoba Bhd's own use d) Employing own programmers to write a computer software that the company will use. Required: Advice the operation manager on the impact of each possibility above on the company's financial statementarrow_forwardHatfield Medical Supplys stock price had been lagging its industry averages, so its board of directors brought in a new CEO, Jaiden Lee. Lee had brought in Ashley Novak, a finance MBA who had been working for a consulting company, to replace the old CFO, and Lee asked Novak to develop the financial planning section of the strategic plan. In her previous job, Novaks primary task had been to help clients develop financial forecasts, and that was one reason Lee hired her. Novak began by comparing Hatfields financial ratios to the industry averages. If any ratio was substandard, she discussed it with the responsible manager to see what could be done to improve the situation. The following data show Hatfields latest financial statements plus some ratios and other data that Novak plans to use in her analysis. Hatfield Medical Supply (Millions of Dollars, Except per Share Data) Selected Additional Data for 2019 Using Hatfields data and its industry averages, how well run would you say Hatfield appears to be in comparison with other firms in its industry? What are its primary strengths and weaknesses? Be specific in your answer and point to various ratios that support your position. Also, use the DuPont equation (see Chapter 3) as one part of your analysis.arrow_forward
- Hatfield Medical Supplys stock price had been lagging its industry averages, so its board of directors brought in a new CEO, Jaiden Lee. Lee had brought in Ashley Novak, a finance MBA who had been working for a consulting company, to replace the old CFO, and Lee asked Novak to develop the financial planning section of the strategic plan. In her previous job, Novaks primary task had been to help clients develop financial forecasts, and that was one reason Lee hired her. Novak began by comparing Hatfields financial ratios to the industry averages. If any ratio was substandard, she discussed it with the responsible manager to see what could be done to improve the situation. The following data show Hatfields latest financial statements plus some ratios and other data that Novak plans to use in her analysis. Hatfield Medical Supply (Millions of Dollars, Except Per Share Data) Selected Additional Data for 2018 Using Hatfields data and its industry averages, how well run would you say Hatfield appears to be compared to other firms in its industry? What are its primary strengths and weaknesses? Be specific in your answer, and point to various ratios that support your position. Also, use the DuPont equation (see Chapter 7) as one part of your analysis.arrow_forwardSuppose you are a part of a group of students from a prominent university and were sent out as a team to work with a leading merchandizing company as a part of a work experience program. The team having been introduced to the general manger was told that the Accountant who normally prepares the financial statements has suddenly resigned and there is no one available to prepare the company’s financial statements which are now due. As aspiring university students, you have expressed an interest in taking on the task. You are required to analyse the problem at hand then apply the accrual basis of accounting in the preparation of the company’s financial statements.arrow_forwardHow could Pascal and Super Tech have identified and addressed this risk? What should Pascal do now? Case - Pascal is the manager of software development for Super Tech. He discovered that Bill, the lead software designer, has announced that he is leaving the company next week. Pascal finds that Bill has accepted a job with Super Tech main competitor. Pascal fear that in his new job, Bill will use technology developed while at the company and disclose the identities of key customers.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning