BUS 600 - Keynesianism vs Monetarism

                  Join the debate -

Keynesianism emphasises the role that fiscal policy can play in stabilizing the economy. It suggests that higher government spending in a recession can help the economy recover quicker.

Monetarism emphasises the importance of controlling the money supply to control inflation. Monetarists are generally critical of expansionary fiscal policy arguing that it will cause just inflation or crowding out and therefore not help.

During this current severe recession, I would think Keynesian economics may offer a better solution. Unemployment is a big problem that needs a solution from the government. People are spending less and less because they will not know whether they will have job and money in the future; and hence business will not do well which implies that business sectors will not hire; which makes unemployment worse. Government needs to do more to create jobs to the people. If the private sectors and government are not hiring, the unemployment rate will not go down. Government’s stimulus plans have to have short-term and long-term help in unemployment.

BUS 600 Week 10 Assignment # 1 -> Chapter 9 Strategy

3 -6 ideas from Chapter 9 Strategy

1.       Two separate stages describe strategic planning: formation and implementation. The Seven S model showing that strategy ought to be interwoven within the fabric of an organization. The Seven S’s are: structure, systems, skills, style, staff, superordinate goals/shared values and strategy. See Figure 1.

                                     

2.   A model for industry analysis – Porter’s Five Forces is an influential analytical model for assessing the nature of competition in an industry.

                                    

                                    

3.    A generic strategy is one that can be used across many industries. Porter has aptly captured the three major strategies in a matrix of functional and business strategic possibilities: cost leadership, differentiation and focus:

                                 

                                       

BUS 600 - Week 9 Assignment # 1 -> Chapter 8 Economics

3 - 6 ideas from Chapter 8 Economics

1.       Economics - the study of resource allocation, the study of incentives, the study of business activities. Economics studies how society allocates the limited resources of the earth to the never satisfied appetites of humans.

2.       Supply and Demand are the forces at work. From the supply and demand curves, we will understand how the price and quantity related in the marketplace. Equilibrium is the point at which the quantity supplied equals the quantity demanded and a mutually agreeable price is determined.

                                               

3.       When you are thinking about the specific market conditions of an industry, a company, or the buying behavior of individuals, microeconomic theory governs. Industries produce the quantity that meets demand at an equilibrium price based on the competitive market structure. Companies produce the quantity at which the marginal revenue of the last unit produced equals the marginal cost. Individuals purchase based on their elasticity of demand.

4.       Keynesian and Monetarist Theory

      Keynesianism emphasises the role that fiscal policy can play in stabilizing the economy. It suggests that higher government spending in a recession can help the economy recover quicker.

      Monetarism emphasises the importance of controlling the money supply to control inflation. Monetarists are generally critical of expansionary fiscal policy arguing that it will cause just inflation or crowding out and therefore not help.

      The current recession looks increasing severe. As people talk more of depression economics rather than just a cyclical downturn, there is increased interest in Keynesian economics and whether this offers a solution.

BUS 600 - Week 8 Assignment # 1 -> Chapter 7 Operations

3 - 6 ideas from Chapter 7 - Operations

1.       Operations management is in the business area concerned with the efficiency and effectiveness of the operation in support and development of the firm’s strategic goals. ‘Operations’ is the only MBA subject that concerns itself with actually making products and providing services – the ultimate purpose of business.

2.       Three management styles used in the plant: (a) Theory X – believe that people are inherently lazy and need to be pushed to produce with rewards and punishments. (b) Theory Y – Workers are inventive and should be consulted for ideas to improve productivity. (c) Theory Z – Combination of Theory X and Y, workers and management work together in quality circles.

3.       There are five-issue framework applies to all operational situations:

(a)    Capacity – how much I can produce?

There are six M’s to guide you in manufacturing analysis – Methods, Materials, Manpower, Machinery, Money and Messages.

(b)   Scheduling – how am I going to do it?

There are tools to help production manager to do scheduling. Optimal timing should be determined so that the sequence of production tasks could be efficiently planned, coordinated, and performed.

(c)    Inventory – How much inventory is there and how can I reduce it?

There are different methods and tools to control inventory in a factory. MRP (material requirements planning) system is used to plan and control inventories required in a factory.

(d)   Standards – What do I consider efficient production and quality control?

With all the information about the production process, standards are being setup so that managers can use them to measure and control performance.

(e)   Controls – Is the production process working?

There are different tools to do production control for example (i) statistical process control (SPC) – distinguishing acceptable variations from variations that could indicate problems, statistical probability provides a method of making that distinction; and (ii) Six sigma – the range of variation that occurs 68 percent of the time was called on standard deviation or one sigma from the expected quantity. Any production measure outside a one-sigma-tolerance quality standard would signal a production problem. Six sigma refers to a program developed by Motorola that refers to a goal of six-sigma standard or 3.4 defects per million. Many companies have six-sigma programs in place to reduce defects and increase profits.

BUS 600 - Week 7 Assignment # 1 -> Chapter 6 Finance

3 - 6 ideas from Chapter 6 - Finance

1.       There are three basic legal business structures in United States:

·         Proprietorships

It is formed by an individual who runs the company without any separation of his or her personal wealth and that of the firm. The advantage is that it is easy to form and there is no double taxation, the drawbacks are that it is nontransferable, has a limited life, and the proprietor has unlimited liability.

·         Partnerships

A partnership is little more than a proprietorship with multiple proprietors. The ownership is nontransferable, the organization has a limited life, and investors still have unlimited liabilities.

There are two types of partnership. In a general partnership, active owners, called general partners, have unlimited liability for all business debts. In a limited partnership structure, limited partners are shielded to the extent of their investment.

·         Corporations

The assets and liabilities of the entity are owned by the corporation, not by the owners of the corporation. The corporation has an unlimited life, must pay taxes (double taxation);  is considered to be separate from its owners.

There are variations to the corporate form – S-Corps and Limited Liability Companies (LLC). S-Corps are corporations (have fewer than 35 shareholders) that pass through the earnings to their investors. The investor must then pay the tax. This gets around double taxation while maintaining the limited liability benefits of a corporation.

LLC are in some ways the best of both worlds. They allow for limited liability but also allow the tax benefits of the S-Corp without the restrictive qualifications of the S-Corp. These are relatively new and only allowed in certain states.

2.       Investment Valuations

Investment valuation can guide in making informed decisions about what to buy or sell. It is the valuation of investments that help in determining whether a particular investment is a prudent, intelligent, worthwhile investment. It is an established fact that equity assets in comparison to debt assets to provide growth and hedge against inflation.

3.       Mergers and Acquisitions (M&A)

The reason for a firm to do M&A:

·         Diversify the company

·         Improve sales and Earnings

·         Purchase an Undervalued Company

·         Lower Operating Cost

The most common situations after a M&A – (a)  Wage Concessions, (b) Layoffs, (c) Lower Production Costs, (d) Reduce Working Capital Needs.

BUS 600 - Week 6 Assignment # 2 -> QA Def & Tools

Week 6 Assignment 2: Find other definitions and tools of quantitative analysis

Search for other tools and definitions of quantitative analysis on the internet. Find at least two of each that are easy to understand. Quote them and insert links to them on your blog.

Quantitative Analysis Definitions:

1)    Quantitative analysis (finance), an analysis technic applying mathematics stochastic calculus to finance. Link: http://en.wikipedia.org/wiki/Quantitative_analysis.

2)    The process of determining the value of a security by examining its numerical, measurable characteristics such as revenues, earnings, margins, and market share.
Link: http://www.investorwords.com/4001/quantitative_analysis.html#ixzz13LTD3AEE

Quantitative Analysis Tools:

1)   Discounted Cash Flow (DCF),

http://financial-dictionary.thefreedictionary.com/discounted+cash+flow

What Does Discounted Cash Flow (DCF) Mean?

A valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them (most often by using the weighted average cost of capital method) to arrive at a present value, which is used to evaluate the investment's potential. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one. It is calculated as follows:

2)   Free Cash Flow (FCF)

http://financial-dictionary.thefreedictionary.com/Free+Cash+Flow

What Does Free Cash Flow (FCF) Mean?

A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it is tough to develop new products, make acquisitions, pay dividends, and reduce debt. FCF is calculated as follows:

It also can be calculated by taking operating cash flow and subtracting capital expenditures.

BUS 600 - Week 6 Assignment # 1 -> Chapter 5 QA

3 - 6 ideas from Chapter 5 - Quantitative Analysis

This chapter has described different tools to help MBA to make business decisions. (Information from link: http://encyclopedia.thefreedictionary.com  - this is easier to understand than the ones in the book). To understand the following popular tools is important:

1)      Decision Trees

A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. It is one way to display an algorithm. Decision trees are commonly used in operations research, specifically in decision analysis, to help identify a strategy most likely to reach a goal. Another use of decision trees is as a descriptive means for calculating conditional probabilities.

Example from http://encyclopedia.thefreedictionary.com/Decision+trees:

Example

Decision trees can be used to optimize an investment portfolio. The following example shows a portfolio of 7 investment options (projects). The organization has $10,000,000 available for the total investment. Bold lines mark the best selection 1, 3, 5, 6, and 7, which will cost $9,750,000 and create a payoff of 16,175,000. All other combinations would either exceed the budget or yield a lower payoff.

2)      Net Present Value (NPV) – The total present value of all cash flows “discounted” to today’s dollars.

Net present value (NPV) is a standard method for the financial appraisal of long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met. It is also called net present worth (NPW)^[1]. By definition,

NPV = Present value of net cash flows. For its expression, see the formula section below.

Formula

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore

Where

t - the time of the cash flow

N - the total time of the project

r - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.)

C_t - the net cash flow (the amount of cash) at time t (for educational purposes, C₀ is commonly placed to the left of the sum to emphasize its role as the initial investment.).

The following sums up the NPVs in various situations.

If...	It means...	Then...
NPV > 0	the investment would add value to the firm	the project may be accepted
NPV < 0	the investment would subtract value from the firm	the project should be rejected
NPV = 0	the investment would neither gain nor lose value for the firm	We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic positioning or other factors not explicitly included in the calculation.

3)      Internal Rate of Return (IRR) – The discount rate that makes the net present value of the cash flows equal zero in today’s dollars.

The internal rate of return (IRR) is a capital budgeting metric used by firms to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to net present value (NPV), which indicates value or magnitude.

The IRR is the annualized effective compounded return rate which can be earned on the invested capital, i.e., the yield on the investment.

A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account). Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium.

Mathematically the IRR is defined as any discount rate that results in a net present value of zero of a series of cash flows.

In general, if the IRR is greater than the project's cost of capital, or hurdle rate, the project will add value for the company.

To find the internal rate of return, find the value(s) of r that satisfies the following equation:

t - the time of the cash flow

N - the total time of the project

r - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.)

C_t - the net cash flow (the amount of cash) at time t (for educational purposes, C₀ is commonly placed to the left of the sum to emphasize its role as the initial investment.).

Example

Calculate the internal rate of return for an investment of 100 value in the first year followed by returns over the following 4 years, as shown below:

Year	Cash Flow
0	-100
1	39
2	59
3	55
4	20

Solution:

We use an iterative solver to determine the value of r that solves the following equation:

The result from the numerical iteration is                        .