Thursday, October 31, 2019

When should we discard explanations that are intuitively appealing Essay

When should we discard explanations that are intuitively appealing - Essay Example Intuition is right in most of other times, though. The dilemma comes in knowing when to actually accept this reasoning based purely on feeling, otherwise called ‘guts’, or to just ignore it and go for the hard facts. Thus, there is a question whether we should discard explanations that are intuitively appealing or not. According to Gillman, in his book of luck, he speaks of intuition being in support of reason and without working against reason at all (20). In saying so, we can choose to retain explanations that are intuitively appealing. There have been cases where intuition has proved to be the friend of reason but still it falls short of what it actually is. Intuitive Attitudes and feelings: attitudes and feelings that are innate are able to create a quite reliable trend of behavior. They are able to forecast a way in which a person will behave at a later time in the future; the analyzed attitudes. However, when a person is asked to examine his/her attitudes before displaying them then this won’t foretell his/her ensuing behavior. They will consciously examine him/her ruling out the intuitive factor. Comprehending Personality Traits: Human beings do not fall short when it comes to social intelligence; instead, they have a tremendous amount of this. For instance, if people were shown short clips of teachers in a class, it is likely that their evaluations would be somewhat similar, based on their intuition, to those of the teacher’s actual students. Instantaneous appraisals of a person’s characters are, thus, usually proved true, therefore, making them as good as the long-term impressions. Intuition and being in touch with our own bodies: Intuition, being an emotional reaction, is usually an expression of what our bodies are experiencing or otherwise feeling. This makes them a firsthand expression of what is actually happening to us, quite believable. It is usually the mind which is in sync with the body by

Tuesday, October 29, 2019

Leadership Essay Example | Topics and Well Written Essays - 1000 words - 20

Leadership - Essay Example The interest to consider leadership under study has developed theories about it in reference to the qualities that should be possessed by those leading others and some of the considered views include; a leader should be charismatic, intelligent, organized, and analytical among others (Mayer, 110). Leadership demonstrates a wide consideration that is not limited in any way. For instance, leadership may exist in the lowest category possible like leading workers in a company, leading a union or demonstrating leadership in the civil right movement. There is also the national leadership, which is a subject to election and leads the people by enacting laws through legislation processes. It should be noted though that the principle of leadership does not change and is irrelevant of the cadres through which one is offering leadership to the people. Given the role and the definition of a leader as stipulated in the above explanation, it is clear that in leadership we need one who takes the interest and the well-being of the people a head of any other interest. One must consult with the people engage them, and do exactly as they have agreed with them. Most of the popular leaders that the world has had were people-oriented; they organized, advised, and took the will of the people selfishly so that they could achieve their desires. Again, at the apex of leadership, one has to posses some qualities that will help understand the masses (Adair, 75). It should be appreciated that in leadership, one is bound to deal with many categories of people all who deserves to be attended to without discrimination; otherwise, you will end up not being a good leader. When at the leadership level, one understand that the rest are vulnerable to your decision, they easily fall a prey to leaders’ advises, this then dictates that one has to guide what making utterances that might be inflammatory. The people always bestow some degree of respect and trust

Sunday, October 27, 2019

Education reform in the United States

Education reform in the United States Yasmine Calderon Education Education reform in the United States is a primary goal for Congress to assist students excel and gain knowledge to survive in the growing and competitive work force. As the United States was once the leading example of Education reform, it is now 12th among other developed nations. The need for incentive programs in classrooms to prepare students for the future of higher education is in high demand. Ensuring students the future of a college education and maintaining a successful job is key to rebuilding the economy and securing bright futures for individuals. Suggested policy implementations include reforms of existing school policies, budget analysis, statistics and facts, and current stances toward the public policy. One of President Obama’s bold incentives to improve teaching and learning in the classrooms that instruct policies and strategies to achieve the goal of college readiness. To date, President Obama has opted 4 billion dollars to 19 states that help to address key areas of education reform. States serve 22 million students and employ 1.5 billion teachers in 42,000 schools representing the 45 percent of all K-12 students and 42 percent of all low income students nationwide. Setting a precedent for the future of young Americans through the Race to the Top program will help those who are challenged change policies and laws to create better college and career ready standards. (Source: www.whitehouse.gov/issues) As states begin to move progressively with education reforms the No Child Left Behind Act imposed by former President George W. Bush left five years of reauthorization overdue. States have been lowering their standards in classrooms by punishing failure over success and fitting everyone into a one-size-fits-all deal. While President Obama has issued a blueprint, Reform of the Elementary and Secondary Education Act, for his incentive Congress has yet to act upon it leaving schools flexible with the law. Passing the law would then set a higher standard for high schools to achieve college readiness and careers. For states to receive that flexibility they must reward and recognize those states that make exceptionally well performance and gains while also tending to those who need help in the lowest performing schools. Under the new law states will develop and propose new plans to help improve outcomes for those groups who pose a threat in a large educational gap. Unlike the one-size-fits -all deal left from the NCLB Act states and districts can improve strategies and resources that will meet the need for student performance. Issuing more reforms for education includes the president calling for improvements to help students gain interest in math, science, engineering and technology. The Obama Administration has reached several successful STEM initiatives that includes combining it with Race to the Top and investing into the Innovation Fund while also implementing new STEM educators called Teacher Corps to further progress students in the path of a successful career. The Teacher Corps will start with a basis of 50 teachers among 50 sites and expand to 10,000 teachers over the next four years. The Obama Administration will launch the Teacher Corps with $1 billion allocated from the President’s 2013 budget request currently before Congress. Along with the President’s education reforms, the Education Amendments Act of 1972 authorized the Secretary of Health, Education, and Welfare to improve postsecondary education opportunities that include providing assistance to educational institutions and agencies for a broad range of reforms and innovations. The role of the bureaucracy has been otherwise noted a major debate in shaping educational performance. Proponents argue that large educational bureaucracies have contributed to shortfalls in performance in America’s public schools. Others view it as beneficial because they manage a wide range of problems that make it easier for teachers to focus on the core of teaching. The federal government totaled an amount of $141 billion on education in the 2014 fiscal year. While calculating that number is challenging, federal programs that are administered by the U.S. Department of Education appear in two separate parts of the budget and other agencies have administered large programs as well. Further measuring spending is not a straightforward deal and the government provides subsidies towards higher education in the form of tax benefits. The $141 billion figure includes annual appropriation for the U.S. Dept. of Education, spending for the department’s annual appropriations that are not subject (i.e. mandatory spending), school meal programs, the Head Start program, revenue and spending on education tax benefits for individuals and military and veterans education benefits. Since the federal government spent a total of $3.5 trillion in the 2013 fiscal year which means the $141 billion spent accounts for 4 percent of the entire federal budget. (Sources: New America Foundation; U.S. Departments of Education, Health and Human Services, Agriculture, Defense, Veterans Afffairs, White House Office of Management and Budget; Congressional Budget Office.) According to the Heritage Foundation, a conservative policy research organization and interest group, a budget presented by House Budget Committee chairmen Paul Ryan (R—Wis.) would provide $74 billion on education spending, training, employment, and social services. The Ryan budget seeks to â€Å"remove regulatory barriers to higher education that act to restrict flexibility and innovative teaching, particularly as it relates to non-traditional models such as online coursework.† Policymakers who support to enable states to have more control over college costs and futures should implement the budget. Just last year Congressman Jared Polis (D-CO) and Senators Mark Udall (D-CO) and Michael Bennet (D-CO) introduced the â€Å"Growth to Excellence Act† that would include rigorous college-and-career ready standards. A bill that would surely receive support from educational advocates. The bill is sure to represent a strong step towards providing students in America with outstanding education that will bring a forefront to the future of these individuals. According to the Council on Foreign Relations, the United States fails to educate students and prepare them for the future to come which leaves critical time for officials to address the situation. Statistics include: A recent report by ACT, a non-profit testing organization, found that only 22 percent of U.S. high school students met â€Å"college ready† standards in all of their core subjects; figures even lower for African Americans and Hispanics. The College Board reported that even among college-bound seniors, only 43 percent met college-ready standards, meaning that more college students need to take remedial courses. While according to U.S. News and World Report, nationwide the number of high school graduates is expected to grow 10 percent in the next 10 years. The northeastern states will experience declines in growth, while high school grads will grow by 24 percent in Texas and Florida. According to the Lawlor Group, trends such as demography, the power of perception, and measurement determine aspects of higher education as seen below: College enrollments will shrink from 38% to 10% over the next 8 years. High school graduates will decrease in all but 18 states in 2019. Mostly in the South you will see an increase. Most students tend to attend a college with less than $11,100 in tuition fees and think it should cost no more than $20,000. (Sources: NCES, College Board, Gallup, Federal Student Aid, Harvard Institute of Politics.) The future of American education is critical to students and individuals who want to maintain a college education. The path of every student along with a sustainable approach would benefit the economy as well. Proposed solutions such as Race to the Top, revisions of the No Child Left Behind act and the STEM program would help to further alleviate the problems posed to higher education. Of course with solutions comes fiscal responsibilities which would introduce a need for a new education budget that would most likely benefit the future of American students. A time for reform is now and policies should be implemented as soon as possible to ensure the livelihood of students and their path to a successful life.

Friday, October 25, 2019

Philosophy and Education: From Elitism to Democracy Essay -- Philosoph

Philosophy and Education: From Elitism to Democracy ABSTRACT: From its first appearance in western culture, philosophy has been considered able to build up reality, to educate people, and to disclose truth. Plato proposed philosophers as governors in life-long pursuit of philosophical learning. Socrates was the ideal paradigm of an educating philosopher: he tried to wake up human minds so that they could be aware of themselves and of the world, criticizing tradition and prejudices in a logically consistent perspective. A critical and dialogic approach—not by mere chance defined as "Socratic"—to problems has been considered until now the most profitable method of teaching. Socrates is a pioneer in discussing the question of a philosophical (paideia), as he defined his method "maieutic." He was not an authoritarian teacher, but a sparring partner in the process of self-education. Moreover, he considered himself as the most learned and, at the same time, the wisest in Greece, just because he was conscious of his ignorance. Therefore, he understood for the first time in our cultural tradition that knowledge is an endless process rather than a product, within marked bounds. From its first appearance in western culture, philosophy has been considered able to build up reality, to educate men and to disclose truth. Plato proposed philosophers as governors and a lifelong philosophical paideia; nevertheless, yet before him, philopophy and kalokagaqia were in a close relation, as Parmenides and Heraclitus show. Particularly Socrates is the ideal paradigm of an educating philosopher: he tried to wake up human minds, so that they could be aware of themselves and of the world, criticizing tradition and prejudices in a logically consis... ...use free means self-governing. Bibliography Calogero G., Filosofia del dialogo, Milano, 1962; Dewey J., How we Think, Boston,1933; Dewey J., Knowing and the Known, Boston, 1949; Dewey J., Logic: The Theory of Inquiry, New York, 1938; Dewey J., Reconstruction in Philosophy, New York,1920; Dewey J., The Sources of a Science of Education, New York, 1929; Fornaca R., La pedagogia filosofica del '900, Milano, 1989; Kant I., Der Streit der Facultà ¤ten, in AK. A., Bd.VII, Berlin, 1907; Là ª Thà ¢n Khà ´i, L'à ©ducation:cultures et società ©s, Paris, 1991; Piaget J., Sagesse et illusions de la philosophie , Paris, 1965; Sartre J.P., L'existentialisme est un humanisme, Paris, 1946; Veca S., Il ruolo della filosofia nella didattica e nella formazione, in La didattica della filosofia nell'università   e nella scuola secondaria superiore, Padova, 1996.

Thursday, October 24, 2019

Human Behavior in Organization in Global Perspective Essay

Organizational behavior is a study that investigates the effect that individuals, groups and structures have on behavior within an organization for the purpose of applying such knowledge towards improving an organization’s effectiveness. Human behavior in organization defines also on how the employees work in certain organization, on how we build the interpersonal relationship towards to the superior and co-workers, according to the Maslow’s theory the people get motivated by the five categories of maslow’s, this would be help the employee to more productive in his work and contribute to the organization, basically, when we speak human behavior in organization, it is the behavior of the employees inside the organization, on now they act in their perspectives work and on how they do their duties inside the organization. How-ever in some cases people get motivated in money, with this they develop their skills in order to get some incentives, money is also one of the factors that people are motivated but there is a negative side on this, sometimes this are this factors that we are always depend in. Human behavior in organization in global perspective defines that on how the employees work in different company and also the relationship on organization to another organization, it is also the motivating factor of the bout company and the employee on how they interact inside and outside the organization, in order them to build the relationship inside and outside of the organization, it is also make the organization be more effectiveness. One of those motivating factors is the ethics, basically ethics in organization is important to make the employees be more productive to their work, and ethics defines as the character of one person. In human behavior in organization in global perspective is the relationship of one people to another, it is also the relationship of one country to another in order to build a trust, for example the manager of one organization will go in other country to for some proposal of business in order to get the heart of the one country the leader must build a trust to his company first, with this global perspective defines as on how we deal to another. In management global perspective one of the keys to successful management is the ability to understand andapply modern management principles and techniques effectively. Managersmust develop an in-depth knowledge of past and present models, theories andprocesses in order to manage effectively and intelligently. Contemporarymanagement practice is pervasive in every aspect of human life within all typesof organizations

Wednesday, October 23, 2019

Stock and Debt

CHAPTER 12 QUESTIONS 12-1Operating leverage affects EBIT and, through EBIT, EPS. Financial leverage generally has no effect on EBIT—it only affects EPS, given EBIT. 12-2Because Firm A has a higher fixed operating costs, its operating income will change by a greater percentage than Firm B’s operating income if sales change. Firm A has a higher degree of operating leverage than Firm B. 12-3If sales tend to fluctuate widely, then cash flows and the ability to service fixed charges also will vary. Consequently, there is a relatively large risk that the firm will be unable to meet its fixed charges.As a result, firms in unstable industries tend to use less debt than those whose sales are subject to only moderate fluctuations. 12-4The tax benefits from debt increase linearly, which causes a continuous increase in the firm’s value and stock price. However, bankruptcy-related costs begin to be felt after some amount of debt has been employed, and these costs offset the benefits of debt. See Figure 12-5 in the textbook. 12-5Carson does have leverage because its EPS increases by a greater multiple than its sales when sales change. According to the information that is given, Carson’s DTL is 4 = 20/5.Because we have no information about either the firm’s operating fixed costs or its fixed financing costs, we cannot state whether the firm has operating leverage, financial leverage, or both. 12-6EBIT depends on sales and operating costs that generally are not affected by the firm’s use of financial leverage, because interest is deducted from EBIT. At high debt levels, however, firms lose business, employees worry, and operations are not continuous because of financing difficulties. Thus, financial leverage can influence sales and cost, hence EBIT, if excessive leverage causes investors, customers, and employees to be oncerned about the firm’s future. 12-7Expected EPS generally is measured as EPS for the coming years, and we typically do not reflec t in this calculation any bankruptcy-related costs. Also, EPS does not reflect (in a major way) the increase in risk and ks that accompanies an increase in the debt ratio, whereas P0 does reflect these factors. Thus, the stock price will be maximized at a debt level that is lower than the EPS-maximizing debt level. 12-8A firm can change the proportion of debt it uses in its capital structure. If the firm has too much (little) debt, it can reduce (increase) the proportion of debt in its capital structure.Such as change should decrease the firm’s WACC, and thus increase its value. 12-9Absolute’s optimal capital structure is 40 percent debt (= $20,000,000/$50,000,000), because the market price of the company’s stock ($130. 75) is maximized at this point. 12-10With increased competition after the breakup of AT&T, the new AT&T and the seven Bell operating companies’ business risk increased. With this component of total company risk increasing, the new companie s probably decided to reduce their financial risk, and use less debt, to compensate.With increased competition the chance of bankruptcy increases and lowering debt usage makes this less of a possibility. If we consider the tax issue alone, interest on debt is tax deductible; thus, the higher the firm’s tax rate the more beneficial the deductibility of interest is. However, competition and business risk have tended to outweigh the tax aspect as we saw from the actual debt ratios of the Bell companies. The Bell companies and the new AT&T lowered their debt ratios, for reasons along these lines. 2-11Several possibilities exist for the firm, but trying to match the length of the project with the maturity of the financing plan seems to be the best approach. The firm might want to finance the R&D with short-term debt and then, if the project’s results are successful, to raise the needed capital for production through long-term debt or equity. Another possibility would be to issue convertible bonds, which can be converted to common stock—a lower interest rate would be paid now, and in the future (presumably the stock price will increase with the new process) investors would trade in the bonds for stock.One also should keep in mind that this project, and R&D in general, is extremely risky and debt financing might not be available except at extremely high rates. For this reason, many R&D companies have low debt ratios, instead paying low dividends and using retained earnings for financing projects. Under Debt financing the expected EPS is $5. 78, the standard deviation is $1. 05, the CV is 0. 18, and the debt ratio increases to 75. 5%. (The debt ratio had been 70. 6 percent. Under Equity financing the expected EPS is $5. 51, the standard deviation is $0. 85, the CV is 0. 15, and the debt ratio decreases to 58. 8 percent. At this interest rate, debt financing provides a higher expected EPS than equity financing; however, the debt ratio is significan tly higher under the debt financing situation as compared with the equity financing situation. Because EPS is not significantly greater under debt financing, but the risk is noticeably greater, equity financing should be recommended.INTEGRATIVE PROBLEMANSWER: Business risk is the uncertainty associated with a firm’s projection of its future operating income.It also is defined as the risk faced by a firm’s stockholders if the company uses no debt. A firm’s business risk is affected by many factors, including: (1) variability in the demand for its output, (2) variability in the price at which its output can be sold, (3) variability in the prices of its inputs, (4) the firm’s ability to adjust output prices as input prices change, (5) the amount of operating leverage used by the firm, and (6) special risk factors (such as potential product liability for a drug company or the potential cost of a nuclear accident for a utility with nuclear plants).ANSWER: Oper ating leverage is the extent to which fixed operating costs are used in a firm’s operations. If a high percentage of the firm's total operating costs are fixed, and hence do not decline when demand falls, then the firm is said to have high operating leverage. Other things held constant, the greater a firm’s operating leverage, the greater its business risk. [pic] ANSWER: Financial leverage refers to the firm’s decision to finance with fixed-charge securities, such as debt and preferred stock. Financial risk is the additional risk, over and above the company's inherent business risk, orne by the stockholders as a result of the firm's decision to finance with debt. [pic] ANSWER: As we discussed above, business risk depends on a number of factors such as sales and cost variability, and operating leverage. Financial risk, on the other hand, depends on only one factor—the amount of fixed-charge capital (financing) the company uses. [pic] ANSWER: Here are the f ully completed statements: The expected TIE would be larger than 2. 5x if less debt were used, but smaller if leverage were increased. [pic] ANSWER: The optimal capital structure is the capital structure at which the tax-related benefits of leverage are exactly offset by debt’s risk-related costs.At the optimal capital structure, (1) the total value of the firm is maximized, (2) the WACC is minimized, and the price per share is maximized. [pic] ANSWER: Here is the sequence of events: 1. CDSS must first announce its recapitalization plans. 2. The company’s stock would have some market price before the announcement, in this case, $20 per share. The company would have to estimate (a) the price it would have to pay for the repurchased shares and (b) the method to be used for the repurchase (open market purchases, or a tender offer). 3.For simplicity, we assume that the firm could repurchase stock at its current price, $20, which also happens to be its book value per share. In actuality, investors would probably reassess their views about the firm’s profitability and risk under the new capital structure, and the stock price probably would rise. No current shareholder would be willing to sell at a price very far below the expected new price, although some would be afraid the recap plan might not go through, and those stockholders would sell out at a lower-than-expected price.Therefore, the stock price would adjust quickly to a new equilibrium that reflects the recapitalization. 4. CDSS would purchase stock, then issue debt and use the proceeds to pay for the repurchased stock. After the recapitalization, the company would have more debt but fewer common shares outstanding. A new EPS could be calculated, and the price would settle into its new level. [pic]4. ANSWER: The analysis for the debt levels being considered (in thousands of dollars and shares) is shown below: At Debt = $0: [pic] At Debt = $250,000: Shares repurchased = $250,000/$20 = 12,5 00.Remaining shares outstanding = 100,000 – 12,500 = 87,500. Note: EPS and TIE calculations are in thousands of dollars. ) [pic] At Debt = $500,000: Shares repurchased = $500,000/$20 = 25,000. Remaining shares outstanding = 100,000 – 25,000 = 75,000. (Note: EPS and TIE calculations are in thousands of dollars. ) [pic] At Debt = $750,000: Shares repurchased = $750,000/$20 = 37,500. Remaining shares outstanding = 100,000 – 37,500 = 62,500. (Note: EPS and TIE calculations are in thousands of dollars. ) [pic] At Debt = $1,000,000: Shares repurchased = $1,000,000/$20 = 50,000. Remaining shares outstanding = 100,000 – 50,000 = 50,000. (Note: EPS and TIE calculations are in thousands of dollars. [pic] [pic] ANSWER: We can calculate the price of a constant growth stock as DPS divided by rs minus g, where g is the expected growth rate in dividends: [pic] Because in this case all earnings are paid out to the stockholders, DPS = EPS. Further, because no earnings are plowed back, the firm’s EBIT is not expected to grow, so g = 0.Here are the results: Debt Level DPS rs Stock Price $ 0 $3. 00 15. 0% $20. 00 250,000 3. 26 15. 5 21. 03 500,000 3. 56 16. 5 21. 58* 750,000 3. 86 18. 0 21. 44 1,000,000 4. 8 20. 0 20. 40 * maximum ANSWER: A capital structure with $500,000 of debt produces the highest stock price, $21. 58, hence it is the best of those considered. ANSWER: We have seen that EPS continues to increase beyond the $500,000 optimal level of debt. Therefore, focusing on EPS when making capital structure decisions is not correct—while the EPS does take account of the differential cost of debt, it does not account for the increasing risk that must be borne by the equity holders. ANSWER: Currently, Debt/Total assets = 0%, so total assets = initial equity = $20 x 100,000 shares = $2,000,000.WACC = ($500,000/$2,000,000)[(11%)(0. 60)] + ($1,500,000/$2,000,000)(16. 5%) = 1. 65% + 12. 38% = 14. 03%. NOTE: If we had (1) used the equilibri um price for repurchasing shares and (2) used market value weights to calculate WACC, then we could be sure that the WACC at the price-maximizing capital structure would be the minimum. Using a constant $20 purchase price, and book value weights, inconsistencies might creep in. [pic] ANSWER: If the firm had higher business risk, then, at any debt level, its probability of financial distress would be higher.Investors would recognize this, and both rd and rs would be higher than originally estimated. It is not shown in this analysis, but the end result would be an optimal capital structure with less debt. Conversely, lower business risk would lead to an optimal capital structure that included more debt. ANSWER: The three degrees of leverage are calculated below: S = $1,350,000 New debt = $500,000 @ 11% VC = 0. 6S F = $40,000 (Note: Calculations are in thousands of dollars. ) [pic] [pic] DTL = DOL x DFL = 1. 08 x 1. 12 = 1. 21. The degree of operating leverage is defined as the percent age change in perating income (EBIT) associated with a given percentage change in sales. Because our company’s degree of operating leverage is 1. 08, this means that a given percentage increase in sales will lead to an 8 percent greater increase in EBIT. For example, if sales increased by 100 percent, then EBIT would increase by 108 percent. The degree of financial leverage is defined as the percentage change in EPS associated with a given percentage change in EBIT. Because CDSS’s degree of financial leverage is 1. 12, this means that if EBIT increased by 100 percent, then EPS would increase by 112 percent.The degree of total leverage shows the combined effects of operating and financial leverage on the firm’s earnings per share. It is defined as the percentage change in EPS brought about by a given percentage change in sales, and it is calculated as DOL x DFL. Because CDSS’s DTL is 1. 21, a 100 percent increase in sales would produce a 121 percent increa se in EPS. The degree of leverage concept is useful for planning purposes, as it gives an idea of what will happen to earnings as sales vary. Investors can use the concept to consider firms with different leverages if they expect sales to rise or fall. [pic]ANSWER: Because it is difficult to quantify the capital structure decision, managers consider the following judgmental factors when making capital structure decisions: (1)The average debt ratio for firms in their industry. (2)Pro forma tie ratios at different capital structures under different scenarios. (3)Lender/rating agency attitudes. (4)Reserve borrowing capacity. (5)Effects of financing on control. (6)Asset structure. (7)Expected tax rate. ANSWER: The following figure presents a graph of the situation: [pic] The use of debt permits a firm to obtain tax savings from the deductibility of interest.So the use of some debt is good; however, the possibility of bankruptcy increases the cost of using debt. At higher and higher leve ls of debt, the risk of bankruptcy increases, bringing with it costs associated with potential financial distress. Customers reduce purchases, key employees leave, and so on. There is some point, generally well below a debt ratio of 100 percent, at which problems associated with potential bankruptcy more than offset the tax savings from debt. Theoretically, the optimal capital structure is found at the point where the marginal tax savings just equal the marginal bankruptcy-related costs.However, analysts cannot identify this point with precision for any given firm, or for firms in general. Analysts can help managers determine an optimal range for their firm’s debt ratios, but the capital structure decision still is more judgmental than based on precise calculations. ANSWER: The asymmetric information concept is based on the premise that management’s choice of financing gives signals to investors. Firms with good investment opportunities will not want to share the benef its with new stockholders, so they will tend to finance with debt. Firms with poor prospects, on the other hand, will want to finance with stock.Investors know this, so when a large, mature firm announces a stock offering, investors take this as a signal of bad news, and the stock price declines. Firms know this, so they try to avoid having to sell new common stock. This means maintaining a reserve of borrowing capacity so that when good investments come along, they can be financed with debt. 12-17Computer-Related Problem a. If the outstanding debt has to be refunded at the new higher interest rate, expected EPS would decline under either financing plan. However, EPS would decline more if debt financing were used. Therefore, ebt financing has become relatively less attractive than stock financing. The output generated by the model is given below:ETHICAL DILEMMA A BOND IS A BOND †¦ IS A STOCK †¦ IS A BONDOCK?Ethical dilemma: Wally is evaluating whether to use a new (to the United States) financial instrument to raise funds to finance Ohio Rubber & Tire’s (ORT) expansion plans. The new instrument, which is called a bondock, has some characteristics of traditional debt and some characteristics that are similar to common equity. The cost of capital associated with bondocks is slightly higher than traditional debt, but significantly lower than common equity.If ORT’s expansion plans are successful, both its bondholders and its stockholders will receive handsome returns. However, if the expansion plans are not successful, then it appears that stockholders can still benefit but at the expense of bondholders. ORT’s executives are some of the company’s major stockholders, so it appears that they would be in favor of issuing bondocks. Discussion questions: ?Is there an ethical problem? If so, what is it? The question here is whether it is appropriate to use a new financial instrument called a bondock to raise funds needed for expansi on.Because the cost of capital associated with a bondock is slightly higher than the cost of debt but significantly lower than the cost of equity, management thinks that it might be appropriate to use this medium to raise funds to invest in risky ventures. If the expansion investment is successful, both the bondholders and the stockholders will benefit. Of course, the benefit to stockholders will be greater than the benefit to bondholders. On the other hand, if the expansion investment is unsuccessful, both bondholders and stockholders will suffer financial losses.But, because the market values of the bondocks will decline significantly, the firm could benefit by repurchasing these financing instruments in the capital markets. In this case, stockholders would benefit at the expense of bondholders. As a result, the ethical question is whether ORT should raise funds using bondocks knowing that there is a possibility that its stockholders will gain at the expense of its bondholders. ?I s it appropriate for ORT to use bondocks to raise funds that are needed for expansion? Is there an ethical dilemma here? Maybe not. Remember that investors take risks when purchasing the stocks and bonds of firms.In this case, ORT would be wise to use bondocks if the purpose is to raise funds for expansion while trying to lower the cost of capital associated with â€Å"going to† the financial markets. It might be argued that it is unethical for ORT to use bondocks if the intent is to benefit executives who receive bonuses and incentives in the form of the company’s stock. It also might be argued that it is unethical if the intent is to harm the position of bondholders.However, if the primary objective is to increase the value of the firm, then it is difficult to argue that issuing this new financial instrument is unethical. What would you do if you were Wally? It seems that the best solution is for Wally to try to get more information about the new financial instrument called a bondock. Because little is known about bondocks and they appear to be rather complex financial instruments, Wally should gather more information about the risks as well as the benefits to ORT associated with using this medium to raise funds for expansion. Once he has performed his due diligence, Wally should determine whether using bondocks will benefit the firm and its investors in general.If the answer is â€Å"no,† then bondocks should not be used. References: The following articles might be assigned for background material: Emily Thornton, â€Å"Gluttons at the Gate,† BusinessWeek, October 30, 2006, pp. 58-66. David Henry, â€Å"Cross-Dressing Securities,† BusinessWeek, March 13, 2006, pp. 58-59