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Ivanildo Fortes
Summer1 2016
BUSI6105*70 – MBA Portfolio
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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
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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.
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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
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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
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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
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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
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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.
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Ivanildo Fortes
Summer 2014
CIDM6310G. Kelly
West Texas A&M University
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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
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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
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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Video Book review
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Ivanildo Fortes
Summer 2015
MKT6352Syed Tariq Anwar Ph.D.
West Texas A&M University
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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.
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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.
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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
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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.
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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
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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.
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Ivanildo Fortes
Summer 2014
ACC6305D. Pullian
West Texas A&M University
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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
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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:
$
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$
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:
=
= 5000
(1 + ) − 1
(1 + 0.07)15 − 1
0.07
= $125 645.11
The Maximum Annual Retirement Benefit he can get is:
Page 59 of 81
=
=
12
$125645.11
= $12 564.51
12
Option 2: Assuming Annuities Due
The Future Value of his savings is given by:
=
= 5000
(1 + ) − 1
(1 + )
(1 + 0.07)15 − 1
(1 + 0.07)
0.07
= $134 440.27
The Maximum Annual Retirement Benefit he can get is:
=
=
12
$134440.27
= $13 444.03
12
3. International Tools Inc.
a. Computing the Loan Payment
= ∗
=
=
1 − (1 + )−
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:
∗ 100
∗
=
100
720000 ∗ 38.7
=
100
=
= $278 640
= −
= $720 000 − $278 640
( ) = $441 360
=
=
$441360
= $73 560
6
Account Receivables
=
= ∗
= (
$720000
) ∗ 31
360
= $62 000
Marketable Securities
= − ( + + ℎ)
= $159 565 − $143 565
= $16 000
Total Current Liabilities
=
$159565
=
= $67 900
2.35
=
Page 64 of 81
Notes Payable
= − ( + )
= $67900 − $47600
= $20 300
Total Assets
$720000
=
= $256 228
2.81
=
Total Debt
∗ 100
∗
=
100
$256228 ∗ 49.4
=
= $126 577
100
=
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:
= [0.08 + (
(0.12 − 0.08) ∗ −$77586.22
)] = 0.09
−$194568.18 − $77586.22
= 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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