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How is the internal rate of return of a project calculated, and what must one look out for when using the internal rate of return rule? Answer: Instead of asking whether a project has a positive NPV, many businesses prefer to ask whether it offers a higher return than shareholders could expect to get by investing in the capital market. Return is usually defined as the discount rate that would result in a zero NPV. This is known as the INTERNAL RATE OF RETURN, or IRR. The project is attractive if the IRR exceeds the OPPORTUNITY COST OF CAPITAL.

What is the net present value of an investment, and how do you calculate it? Answer: The NET PRESENT VALUE of a project measures the difference between its value and cost. NPV is therefore the amount that the project will add to shareholder wealth. A company maximizes shareholder wealth by accepting all projects that have a positive NPV.

How do changes in working capital affect project cash flows? Answer: Increases in NET WORKING CAPITAL, such as accounts receivable or inventory, are investments and, therefore, use cash. That is, they reduce the net cash flow provided by the project in that period. When working capital is run down, cash is freed up, so cash flow increases.

How is the company's tax bill affected by capital cost allowance (CCA) and how does this affect project value? Answer: CCA is not a cash flow. However, because CCA reduces taxable income, it reduces taxes. This tax reduction is called the CCA TAX SHIELD. For computing tax depreciation in Canada, assets are assigned into different ASSET CLASSES, which have specified CCA rates. Most asset classes follow a declining balance system for computing CCA, and, therefore, most assets continue to generate CCA tax shields over an infinite tie frame. Because of this, we find the present value of operating cash flows separately from the present value of the CCA tax shields to determine the net present value of a project.

How can the cash flows of a project be computed from standard financial statements? Answer: Project cash flow does not equal profit. You must allow for changes in working capital as well as non-cash expenses such as depreciation. Also, if you use a nominal cost of capital, consistency requires that you forecast nominal cash flows - that is, cash flows that recognize the effect of inflation.

Why is managerial flexibility important in capital budgeting? Answer: Some projects may take in added value because they give the firm the option to bail out if things go wrong or to capitalize on success by expanding. These options are known as REAL OPTIONS, which include options to expand, abandon, delay investment, or make use of flexible production facilities. We showed how DECISION TREES may be used to set out the possible choices.

Why is an overestimate of sales more serious for projects with high operating leverage? Answer: OPERATING LEVERAGE, the degree to which costs are fixed. A project's breakeven point will be affected by the extent to which costs can be reduced as sales decline. If the project has mostly FIXED COSTS, it is said to have HIGH OPERATING LEVERAGE. High operating leverage implies that profits are more sensitive to changes in sales.

How are sensitivity, scenario, and break-even analyses used to see the effects of forecasting errors on project profitability? Answer: Good managers realize that the forecasts behind NPV calculations are imperfect. Therefore, they explore the consequences of a poor forecast and check whether it is worth doing some more homework. They use the following principal tools to answer these "what if" questions: - SENSITIVITY ANALYSIS, in which one variable at a time is changed. - SCENARIO ANALYSIS, in which the manager looks at the project under alternative scenarios. - SIMULATION ANALYSIS, an extension of scenario analysis in which a computer generates hundreds or thousands of possible combinations of variables. - BREAK-EVEN ANALYSIS, in which the focus is on how far sales could fall before a project begins to lose money. Often the phrase "lose money" is defined in terms of accounting losses, but it makes more sense to define it as "failing to cover the op

How do large corporations go about selecting positive NPV projects? Answer: For most large corporations there are two stages in the investment process: the preparation of the CAPITAL BUDGET, which is a list of planning investments, and the authorization process for individual projects. This process is usually a cooperative effort. Investment projects should never be selected through a purely mechanical process. Managers need to ask why a project should have a positive NPV. A positive NPV is plausible only if the company has some competitive advantage that prevents its rivals from stealing most of the gains.

What is the difference between unique risk, which can be diversified away, and market risk, which cannot? Answer: Even if you hold a well-diversified portfolio, you will not eliminate all risk. You will still be exposed to macroeconomic changes that affect most stocks and the overall stock market. This means that stock returns are positively correlated. These macro risks combine to create market risk - that is, the risk that the market as a whole will slump. Stocks are not all equally risky. But what do we mean by a "high risk" stock? We don't mean a stock that is risky if held in isolation; we mean a stock that makes an above average contribution to the risk of a diversified portfolio. In other words, investors don't need to worry much about the risk that they can diversify away; they do need to worry about risk that can't be diversified. This depends on the stock's sensitivity to macroeconomic conditions.

Why does diversification reduce risk? Answer: The standard deviation of returns is generally higher on individual stocks than it is on the market. Because individual stocks do not move in lockstep, much of their risk can be diversified away. Stock returns are less than perfectly correlated. By spreading your portfolio accross many investments you smooth out the risk of your overall position. The risk that can be eliminated through diversification is known as unique risk.

How is the standard deviation of returns for individual common stocks or a stock portfolio calculated? Answer: The spread of outcomes on different investments is commonly measured by the variance or standard deviation of the possible outcomes. The variance is the average of the squared deviations around the average outcome, and the standard deviation is the square root of the variance. The standard deviation of the returns on a market portfolio of common stocks has averaged about 17 percent per year.

How can one estimate the opportunity cost of capital for an "average risk" project? Answer: Over the past 85 years the calculated return on a large portfolio of Canadian common stocks has averaged about 7 percentage points a year higher than the return on safe Treasury bills. This is the risk premium that investors have received for taking on the risk of investing in stocks. Long-term bonds have offered a higher return that Treasury bills but less than stocks. If the risk premium in the past is a guide to the future, we can estimate the expected return on the market today by adding that 7 percentage point expected risk premium to today's interest rate on Treasury bills. This would be the opportunity cost of capital for an average-risk project, that is, one with the same risk as a typical share of common stock.

How can a manager calculate the opportunity cost of capital for a project? Answer: The opportunity cost of capital is the return investors give up by investing in the project rather than in securities of equivalent risk. Financial managers use the capital asset pricing model to estimate the opportunity cost of capital. The COMPANY COST OF CAPITAL is the expected rate of return demanded by investors in a company, determined by the average risk of the company's assets and operations. The opportunity cost of capital depends on the use to which the capital is put. Therefore, required rates of return are determined by the risk of the project, not by the risk of the firm's existing business. The PROJECT COST OF CAPITAL is the minimum acceptable expected rate of return on a project given its risk. Your cash flow forecasts should already factor in the chances of pleasant and unpleasant surprises. Potential bad outcomes should be reflected in the discount rate only to the exte

What is the relationship between the market risk of a security and the rate of return that investors demand of that security? Answer: The extra return that investors require for taking risk is known as the risk premium. The Canadian MARKET RISK PREMIUM - that is, the risk premium on the MARKET PORTFOLIO - averaged 7 percent between 1926 and 2010. The CAPITAL ASSET PRICING MODEL states that the expected risk premium of an investment should be proportional to both its beta and the market risk premium. The expected rate of return from any investment is equal to the risk-free interest rate plus the risk premium, so the CAPM boils down to r = rf + B(rm - rf) The SECURITY MARKET LINE is the graphical representation of the CAPM equation. The security market line relates the expected return investors demand of a security to the beta.

How do you calculate the beta of a portfolio? Answer: The relevant risk of any security is its beta, the sensitivity of its return to the return on the market portfolio. The beta of a portfolio, a group of securities, is the weighted average of the betas of each security, where each security's weight is its fraction of the portfolio value.

How can you measure and interpret the market risk, or beta, of a security? Answer: The contribution of a security to the risk of a diversified portfolio depends on its market risk. But not all securities are equally affected by fluctuations in the market. The sensitivity of a stock to market movement is known as BETA. Stocks with a beta of greater than 1.0 are particularly sensitive to market fluctuations. Those with a beta of less than 1.0 are not so sensitive to such movements. The average beta of all stocks is 1.0.

Can WACC be used to value an entire business? Answer: Just think of the business as a very large project. Forecast the business's operating cash flows (after-tax profits plus depreciation), and subtract the future investments in plant and equipment and in net working capital. The resulting FREE CASH FLOWS can then be discounted back to the present at the weighted-average cost of capital. The appropriate WACC reflects the riskiness of the firm and the selected capital structure. Of course, the cash flow flows from a company may stretch far into the future. Financial managers therefore typically produce detailed cash flows only up to some horizon date and then estimate the remaining value of the business at the horizon.

How are the costs of debt and equity calculated? Answer: The cost of debt(r debt) is the market interest rate demanded by bondholders. In other words, it is the rate that the company would pay on new debt issued to finance its investment projects. The cost of preferred (r preferred) is just the preferred dividend divided by the market price of a preferred share. The tricky part is estimating the cost of equity (r equity), the expected rate of return on the firm's shares. Financial managers use the capital asset pricing model to estimate expected return. But for mature, steady-growth companies, it can also make sense to use the constant-growth dividend discount model. Remember, estimates of expected return are less reliable for a single firm's stock than for a sample of comparable-risk firms. Therefore, some managers also consider WACC's calculated for industries.

How do firms compute the weighted-average cost of capital? WACC = [ (D/V) (1-Tc) (r debt) + (E/V) (r equity) + (P/V) (r preferred) Answer: The WACC is the expected rate of return on the portfolio of debt and equity securities issued by the firm. The required rate of return on each security is weighted by its proportion of the firm's total market value (not book value). Since interest payments reduce the firm's income tax bill, the required rate of return on debt is measured after tax, as (1-Tc)r debt. This WACC formula is usually written assuming the firm's capital structure includes just two classes of securities: debt and equity. If there is another class, say preferred stock, the formula expands to include it. In other words, we would estimate r preferred, the rate of return demanded by preferred shareholders, determine P/V, the fraction of market value accounted for by preferred, and add r preferred X P/V to the equation. Of course the weights in the WACC form

What about projects that are not average? Answer: A WEIGHTED-AVERAGE COST OF CAPITAL can still be used as a benchmark. The appropriate benchmark (or project cost of capital) must use the cost of equity that reflects the risk of the project and incorporate the appropriate mix of debt and equity financing for the project.

Why do managers compute their company's weighted-average cost of capital? Answer: Managers need a standard discount rate for evaluating average-risk projects. An "average risk" project is one that has the same risk as the firm's existing assets and operations.

What are some of the major sources of short-term financing, and how are interest rates on these loans quoted? Answer: A major source of short-term financing is bank loans. Often, firms pay a regular fee for a LINE OF CREDIT that allows them to borrow from the bank up to an agreed amount. The interest rate on short-term bank loans is usually quoted as a simple interest rate (or APR). Sometimes the interest rate is quoted as a discount, so that the interest is deducted up front. Two other important sources of short-term financing.

Why do firms need to invest in net working capital? Answer: - Short-term financial planning is concerned with the management of the firm's short-term, or current, assets and liabilities. The most important current assets are cash, marketable securities, inventory, and trade receivables. The most important current liabilities are bank loans and trade payables. - The difference between current assets and current liabilities is called NET WORKING CAPITAL (NWC). NWC arises from lags between the time the firm obtains the raw materials for its product and the time it finally collects its bills from customers. The OPERATING CYCLE is the length of time from the purchase of raw materials to the collection of cash from customers. - The cash CONVERSION CYCLE is the length of time between the firm's payment for materials and the date that it gets paid by its customers. THE CASH CONVERSION CYCLE is partly within management's control. For example, it can choose to have a higher

How does long-term financing policy affect short-term financing requirements? Answer: The nature of the firm's short-term financial planning problem is determined by the amount of long-term capital it raises. A firm that issues large amounts of long-term debt or common stock, or that retains a large part of its earnings, may find that it has permanent excess cash. Other firms raise relatively little long-term capital and end up as permanent short-term debtors. Most firms attempt to find a happy balance by financing all long-term assets and part of current assets with equity and long-term debt. Such firms may invest cash surpluses during part of the year and borrow during the rest of the year.

Why is an understanding of inventory management useful for cash management? Answer: Cash is simply a raw material - like inventories of other goods - that you need to do business. Capital that is tied up in large inventories of any raw material rather than earning interest is expensive. So why do you hold inventories at all? Why not order materials when you need them? The answer is that placing many small orders is also expensive. The principles of optimal inventory management and optimal cash management are similar.

What are the costs and benefits of holding cash? Answer: Cash provides liquidity, but it doesn't pay interest. Securities pay interest, but you can't use them to buy things. As financial manager, you want to hold up cash to the point at which the incremental or marginal benefit of liquidity is equal to the cost of holding cash, that is, the interest you could earn on securities.

What are costs and benefits of holding inventories? Answer: The benefit of higher inventory levels is the reduction in order costs associated with restocking and the reduced chances of running out of material. The costs are the carrying costs, which include the cost of space, insurance, spoilage and the opportunity cost of the capital tied up in inventory. The ECONOMIC ORDER QUANTITY is the order size that minimizes the sum of order costs plus carrying costs.

How do firms decide whether it makes sense to grant credit to a customer? Answer: CREDIT POLICY refers to the decision to extend credit to a customer. The job of the credit manager is not to minimize the number of bad debts; it is to maximize profits. This means that you weigh the odds that the customer will pay, providing you with a profit, against the odds that the customer will default, resulting in a loss. Remember not to be too short-sighted when reckoning the expected profit. It is often worth accepting the marginal applicant is there is a chance the applicant might become a regular and reliable customer.

How do firms assess the probability that a customer will pay? Answer: Credit analysis is the process of deciding which customers are likely to pay their bills. There are various sources of information: your own experience with the customer, the experience of other creditors, the assessment of a credit agency, a check with the customer's bank, the market value of the customer's securities, and an analysis of the customer's financial statements. Firms that handle a large volume of credit information often use a formal system for combining the various sources into an overall credit score.

How do we measure the implicit interest rate on credit? Answer: The effective interest rate for customers who buy goods on credit rather than taking the discount for quicker payment is: [ 1+ (discount / discounted price) ^(365/extra days' credit) ] -1

What are the usual steps in credit management? Answer: - The first step in credit management is to set normal TERMS OF SALE. This means that you must decide the length of the payment period and the size of any cash discounts. In most industries these conditions are standardized. - Your second step is to decide the form of the contract with your customer. Most domestic sales are made on OPEN ACCOUNT. In this case the only evidence that the customer owes you money is the entry in your ledger and a receipt signed by the customer. Sometimes, you may require a more formal commitment before you deliver the goods. For example, the supplier may arrange for the customer to provide a trade acceptance. - The third task is to access each customer's creditworthiness. - When you have made an assessment of the customer's credit standing, the fourth step is to establish sensible credit policy. - Finally, once the credit policy is set, you need to establish a collection policy to iden

Identify the various computer-based actions you can take to protect your information assets. Answer: - Check to see the websites that anyone who may have used your computer has visited. - Never post personal information about yourself or your family in chat rooms or on social networking sites. Use the privacy features provided by social networking sites to limit public access to your profile. - Never open unrequested attachments to e-mail files, even those from people you know and trust. - Never open attachments or web links in e-mails from people you do not know. - Never accept files transferred to you during Internet chat or instant messaging sessions. - Never download any files or software over the Internet from sites that you do not know. - Never download files or software that you have not requested. - Test your system. - Run free malware scans on your computer. - Have an anti-malware product on your computer and have it set for automatic updates. - Have a firewall

Identify the various behavioural actions you can take to protect your information assets. Answer: - Do not provide personal information to strangers in any format (physical, verbal, or electronic). - Protect your social insurance number. - Where available, use credit cards with your picture on them. - Do not sign your credit cards. Instead, write "photo ID required" on the back. - Pay close attention to our credit card billing cycles. - Limit your use of debit cards. - Do not use a personal mailbox at your home for anything other than catalogues and magazines. - Use a cross-cut, or confetti, shredder. - Sign up with a company that provides proactive protection of your personal information.

Explain why it is critical that you protect your information assets. Answer: We live in a digital world. Unfortunately, every time we use our computers or access the Internet, we risk exposing both professional and personal information to people looking to steal or exploit that information. It is your responsibility to protect yourself in our hostile digital environment. Protecting yourself is even more critical today because organized crime is increasingly turning its attention to home users. Because businesses are improving their information security, consumers now have become the next logical target.

Describe three BI applications that present the results of data analyses to users, and offer examples of how businesses and government agencies can use each of these technologies. Answer: A dashboard provides easy access to timely information and direct access to management reports. A geographic information system (GIS) is a computer-based system for capturing, integrating, manipulating, and displaying data using digitized maps. Reality mining analyzes information extracted from the usage patterns of mobile phones and other wireless devices.

Specify the BI applications available to users for data analysis, and provide examples of how each one might be used to solve a business problem at your university. Answer: Users have a variety of BI applications available to help them analyze data. These applications include multi-dimensional analysis, data mining, and decision support systems. Multidimensional data analysis, also called on-line analytical processing (OLAP), involves "slicing and dicing" data stored in a dimensional format, drilling down to greater data detail, and aggregating data. Data mining is the process of searching for valuable business information in a large database, data warehouse, or data mart. Decision support systems (DSS) combine models and data in an attempt to analyze semi-structured and some unstructured problems with extensive user involvement.

Describe and provide examples of the three different ways in which organizations use business intelligence (BI). Answer: There are three major ways that organizations use BI: - The development of one or a few related BI applications: This BI target often is a point solution for a departmental need, such as campaign management in marketing. A data mart usually is created to store necessary data. - The development of infrastructure to support enterprise-wide BI: This target supports current and future BI needs. A critical component is an enterprise data warehouse. - Support for organizational transformation. With this target, BI is used to fundamentally change how a company competes in the marketplace. BI supports a new business model and enables the business strategy.

Identify the phases in the decision-making process, and use a decision-support framework to demonstrate how technology supports managerial decision making. Answer: When making a decision, either organizational or personal, the decision maker goes through a three-step process: intelligence, design, and choice. When the choice is made, the decision is implemented. Several information technologies have been successfully used to directly support managers. Collectively, they are referred to as business intelligence information systems. Figure 10.2 provides a matrix that shows how technology supports the various types of decisions that managers must take.

Define "cloud computing," and analyze its advantages and disadvantages. Answer: With cloud computing, tasks are performed by computers physically removed from the user and accessed over a network, in particular, the Internet. The advantages of cloud computing include much lower infrastructure costs; disadvantages include privacy, security, and reliability concerns.

Describe the evolution of IT Infrastructure. Answer: The IT infrastructure in organizations has evolved through these stages: - The stand-alone mainframe - Mainframe and dumb terminals - Stand-alone personal computers - Local area networks (client/server computing) - Enterprise computing - Cloud computing and mobile computing

Identify the major types of application software. Answer: The major types of application software are spreadsheet, data management, word processing, desktop publishing, graphics, multimedia, communications, speech recognition, and groupware. Software suites combine several types of application software (e.g., word processing, spreadsheet, and data management) into an integrated package.

Differentiate between the two major types of software and describe the general functions of the operating system. Answer: Software consists of computer programs (coded instructions) that control the functions of computer hardware. There are two main categories of software: Systems software and application software. Systems software manages the hardware resources of the computer system; it functions between the hardware and the application software. The major type of systems software is the operating system. Application software enables users to perform specific tasks and information-processing activities. Application software may be proprietary or open source. Operating systems manage the actual computer resources (i.e., the hardware). They schedule and process applications (jobs); manage and protect memory; manage the input and output functions and hardware; manage data and files; and provide security, fault tolerance, and graphical user interfaces.

Analyze the advantages and disadvantages of open-source software. Answer: The advantages of open-source software include high quality, reliability, flexibility (code can be changed to meet users' needs), and low cost. Open-source software can be more reliable than commercial software. Because the code is available to many developers, more bugs are discovered early and quickly and are fixed immediately. Disadvantages include the cost of maintenance support contracts, concerns about ease of use, the time and expense needed to train users, and the lack of compatibility with existing systems both inside and outside the organization.

Analyze the advantages and disadvantages of open-source software. Answer: The advantages of open-source software include high quality, reliability, flexibility (code can be changed to meet users' needs), and low cost. Open-source software can be more reliable than commercial software. Because the code is available to many developers, more bugs are discovered early and quickly and are fixed immediately. Disadvantages include the cost of maintenance support contracts, concerns about ease of use, the time and expense needed to train users, and the lack of compatibility with existing systems both inside and outside the organization.

Discuss the major software issues that confront modern organizations. Answer: Computer program code often contains errors. The industry recognizes the enormous problem of software defects, but only initial steps are being taken to resolve it. Software licensing is yet another issue for organizations and individuals. Copying proprietary software is illegal. Software vendors copyright their software to protect it from being copied. As a result, companies must license vendor-developed software to use it.

Differentiate the various types of input and output technologies and their uses. Answer: Principal human data-entry input technologies include the keyboard, mouse, optical mouse, trackball, touchpad, joystick, touchscreen, stylus, and voice-recognition systems. Principal source-data automation input devices are barcode scanners, optical mark readers, magnetic ink character readers, optical character readers, sensors, cameras, and radio-frequency identification. Common output technologies include various types of monitors, impact and non-impact printers, plotters, and voice output.

Describe the Hierarchy of computers according to power and their respective roles. Answer: - Supercomputers are the most powerful computers, designed to handle the maximum computational demands of science and the military. - Mainframes, although not as powerful as supercomputers, are powerful enough for large organizations to use for centralized data processing and large databases. - Midrange Computers Minicomputers are smaller and less powerful versions of mainframes that are often devoted to managing specific subsystems. Minicomputers are a type of server. - Microcomputers Desktop personal computers (PCs) are the common, well-known personal and business computers. Laptop or notebook computers are small, easily transportable PCs. Tablet computers (or tablets) are complete computers contained entirely in a flat touchscreen that uses a stylus, digital pen, or fingertip as an input device instead of a keyboard or mouse.

Discuss the strategic issues that link hardware design to business strategy. Answer: Strategic issues linking hardware design to business strategy include: How do organizations keep up with the rapid price/performance advancements in hardware? How often should an organization upgrade its computers and storage systems? How can organizations measure benefits gained from price/performance improvements in hardware?

Identify the major hardware components of a computer system. Answer: Modern computer systems have six major components: the central processing unit (CPU), primary storage, secondary storage, input technologies, and communication technologies.

List and provide examples of the three types of business pressures, and describe one IT response to each. -Answer:  Market Pressures: An example of a market pressure is powerful customers. Customer relationship management is an effective IT response that helps companies achieve customer intimacy. - Technology Pressures: An example of technology pressure is information overload. Search engines and business intelligence applications enable managers to access, navigate, and use vast amounts of information. - Societal/Political/Legal Pressures: An example of a societal/political/legal pressure is social responsibility, such as the state of the physical environment. Green IT is one response that is intended to improve the environment.

Differentiate between the terms "business process reengineering" and "business process management." Answer: Business process reengineering (BPR) is a radical redesign of an organization's business processes that is intended to improve the efficiency and effectiveness of these processes. The key to BPR is for enterprises to examine their business processes from a "clean sheet" perspective (that is, from scratch) and then determine how they could best reconstruct those processes to improve their business functions. Because BPR proved difficult to implement, organizations have turned to business process management (BPM). BPM is a management technique that includes methods and tools to support the design, analysis, implementation, management, and optimization of business processes. 

Understand the concept of business processes, and provide examples of business processes in the functional areas of an organization Answer: A business process is an ongoing collection of related activities that produce a product or a service of value to the organization, its business partners, and/or its customers. Examples of business processes in the functional areas are managing accounts payable, managing accounts receivable, managing post-sale customer follow-up, managing bills of materials, managing manufacturing change orders, applying disability policies, hiring employees, training staff and computer users, and applying Internet use policy.

List three positive and three negative societal effects of the increased use of information technology. Answer: Positive societal effects include: - IT can provide opportunities for people with disabilities - IT can provide people with flexibility in their work (e.g., work from anywhere, anytime). - Robots will take over mundane chores. - IT will enable improvements in health care. Negative societal effects include: - IT can cause health problems for individuals. - IT can place employees on constant call. - IT can potentially misinform patients about their health problems. 

Provide three ways in which information technology can impact managers and three ways in which it can impact non-managerial workers. Answer: Potential IT impacts on managers include: 1 - IT may reduce the number of middle managers 2 - IT will provide managers with real-time or near real-time information, meaning that managers will have less time to make decisions. 3 - IT will increase the likelihood that managers will have to supervise geographically dispersed employees and teams. Potential IT impacts on non-managerial workers include: 1 - IT may eliminate jobs. 2 - IT may cause employees to experience a loss of identity 3 - IT can cause job stress and physical problems, such as repetitive stress injury.

Identify three ways in which you depend on information technology in your daily life. Answer: You are practising continuous computing, where you are surrounded with a movable information network. Think of all you do on-line, often with your phone: register for classes; take classes, and not just classes from your university; access class syllabi, information, PowerPOints, and lectures; conduct banking; pay your bills; research, shop, and buy products from companies or other people; sell your "stuff"; search for, and apply for, jobs; have your own page on Facebook; text and tweet your friends and family throughout your day; and many other activities.

Begin the process of becoming an informed user of your organization's information systems. Answer: The benefits of being an informed user of IT include: - You will benefit more from your organization's IT applications because you will understand what is "behind" those applications. - You will be able to provide input into your organization's IT applications, thus improving the quality of those applications. - You will quickly be in a position to recommend or participate in the selection of IT applications that your organization will use. - You will be able to keep up with rapid developments in existing information technologies, as well as the introduction of new technologies. - You will understand the potential impacts that "new and improved" technologies will have on your organization and therefore will be qualified to make recommendations concerning their adoption and use. - You will play a key role in managing the information systems in y

Why does it make sense for corporations to maximize their market value? Answer: Value maximization is the natural financial goal of the firm. Maximizing value maximizes the wealth of the firm's owners, its shareholders. Shareholders can invest or consume that wealth as they wish.

Who are the major financial managers? Answer: Almost all managers are involved to some degree in investment decisions, but some managers specialize in finance, for example, the treasurer, controller, and CFO. The treasurer is most directly responsible for raising capital and maintaining relationships with banks and investors that hold the firm's securities. The controller is responsible for preparing financial statements and managing budgets. In large firms, a chief financial officer who oversees both the treasurer and the controller will also be involved in financial policymaking and corporate planning.

What are the advantages and disadvantages of the most common forms of business organization? Which forms are most suitable to different types of businesses? Answer: Businesses may be organized as sole proprietorships, partnerships, or corporations. A corporation is legally distinct from its owners. Therefore, the shareholders who own a corporation enjoy limited liability for its obligations. Ownership and management of corporations are usually separate, which means that the firm's operations need not be disrupted by changes in ownership. On the other hand, corporations are subject to double taxation. Large public companies are always corporations.

What does "real asset" mean? What is a "financial asset"? Answer: Real assets include all assets used in the production or sale of the firms' products or services. Real assets can be tangible (plant and equipment, for example) or intangible (patents or trademarks, for example). Financial assets are securities (such as shares) sold by the firm to raise money and represent claims on the firm's real assets and the cash generated by those assets.

What are the two major decisions made by financial managers? Answer: Financial management can be broken down into: (1) the investment, or capital budgeting, decision, and (2) the financing decision. The firm has to decide: (1) how much money to invest and which real assets to invest in and (2) how to raise the necessary cash.

How does competition among investors lead to efficient markets? Answer: Competition between investors will tend to produce an EFFICIENT MARKET - that is, a market in which prices rapidly reflect new information, and investors have difficulty making consistently superior returns. Of course, we all hope to beat the market, but, if the market is efficient, all we can rationally expect is a return that is sufficient on average to compensate for the time value of money and for the risk we bear. The efficient market theory comes in three flavors. the WEAK FORM states that prices reflect all the information contained in the past series of stock prices. In this case it is impossible to earn superior profits simply by looking for past patterns in stock prices. The SEMI-STRONG FORM of the theory states that prices reflect all published information, so that it is impossible to make consistently superior returns just by reading the newspaper, looking at the company's annual accounts, a

How should Investors interpret price-earnings ratios? Answer: You can think of a share's value as the sum of two parts - the value of the assets in place and the PRESENT VALUE OF GROWTH OPPORTUNITIES, that is, of future opportunities for the firm to invest in high-return projects. The PRICE-EARNINGS (P/E) RATIO reflects the market's assessment of the firm's growth opportunities.

How can stock valuation formulas be used to infer the expected rate of return on a common stock? Answer: If dividends are expected to grow forever at a constant rate g, the expected return on the stock is equal to the dividend yield (DIV1/P0) plus the expected rate of dividend growth. The value of the stock according to this CONSTANT-GROWTH DIVIDEND DISCOUNT MODEL is P0 = DIV1 / (r-g).

How can one calculate the present value of a stock given forecasts of future dividends and future stock price? Answer: Shareholders generally expect to receive (1) cash DIVIDENDS and (2) capital gains or losses. The rate of return that they expect over the next year is defined as the expected dividend per share DIV1 plus the expected increase in price P1-P0, all dividend by the price at the start of year P0. Unlike the fixed interest payments that the firm promises to bondholders, the dividends paid to shareholders depend on the fortunes of the firm. That's why a company's common stock is riskier than its debt. The return that investors expect on any one stock is also the return that they demand on all stocks subject to the same degree of risk. The present value of a stock equals the present value of the forecast future return as the discount rate. The present value of a share is equal to the stream of expected dividends per share up to some horizon date plus the expect

What information about company stocks is regularly reported in the financial Web sites of newspapers and online financial services? Answer: Firms that wish to raise new capital may either borrow money or bring new "partners" into the business by selling shares of COMMON STOCK. Large companies usually arrange for their stocks to be traded on a stock exchange. The stock listings report the stock's price, price change, trading volume, DIVIDEND YIELD, and price-earnings (P/E) ratio.

Why do investors pay attention to bond ratings and demand a higher interest rate for bonds with low ratings? Answer: Investors demand higher promised yields if there is a high probability that the borrower will run into trouble and default. CREDIT RISK implies that the promised yield to maturity on the bond is higher than the expected yield. The additional yield investors require for bearing credit risk is called the DEFAULT PREMIUM. Bond ratings measure the bond's credit risk.

What determines the difference between yields on long-term and short-term bonds? Answer: According to the EXPECTATIONS THEORY, bonds are priced so that the expected return over any period is independent of the maturity of the bonds held. Consequently, a higher yield on a longer-term bond implies that the investors expect future short-term interest rates to rise. However, the expectations theory ignores INTEREST RATE RISK, which arises from the fact that bond prices rise when market rates fall, and fall when market rates rise. Long-term bonds exhibit greater interest rate risk than short-term bonds. According to the LIQUIDITY-PREFERENCE THEORY, long-term bonds earn extra return to compensate for interest rate risk, resulting in higher yields on long-term bonds and a tendency for the yield curve to be upward sloping.

Why do interest rates change over time and what is a yield curve? Answer: The general level of interest rates varies over time with changes in the real rate of interest and expected inflation. The FISHER EFFECT says that the nominal interest rate equals the real rate of interest plus expected inflation. The YIELD CURVE is a snapshot of yields on bonds of different maturities at a point in time. Typically, it is upwardly sloping but can also be downward-sloping or humped.

How can one find the market price of a bond given its yield to maturity and find a bond's yield given its price? Why do prices and yields vary inversely? Answer: Bonds are valued by discounting the coupon payments and the final repayment by the yield to maturity on comparable bonds. The bond payments discounted at the bond's yield to maturity equal the bond price. You may also start with the bond price and ask what interest rate the bond offers. This interest rate that equates the present value of bond payments to the bond price is the yield to maturity. Because present values are lower when discount rates are higher, price and yield to maturity vary inversely.

What are the differences between the bond's coupon rate, current yield, and yield to maturity? Answer: A bond is a long-term debt of a government or corporation. When you own a bond, you receive a fixed interest payment each year until the bond matures. This payment is known as the coupon. The COUPON RATE is the annual coupon payment expressed as a fraction of the bond's FACE VALUE. At maturity the bond's face value is repaid. In Canada most bond's have a face value of $1,000. The CURRENT YIELD is the annual coupon payment expressed as a fraction of the current bond's price. The YIELD TO MATURITY measures the average rate of return to an investor who purchases the bond and holds it until maturity, accounting for coupon income as well as the difference between purchase price and face value. 

What distinguishes inventoriable and period costs among manufacturing companies, merchandising companies, and service-sector companies? Answer: Manufacturing-sector companies convert materials into finished goods. These costs are inventoriable under IFRS/ASPE. The three manufacturing inventories depict stages in the conversion process: direct materials, work in process.

Why are average costs different from unitized fixed costs? Answer: Analysis requires a focus on total costs, not unit costs. An average cost rate is appropriate only when the quantity of identical units produced is constant. The unitized (or, per unit) cost rate varies as the quantity of distinct units produced varies. The higher the quantity produced, the lower the unitized rate for a fixed cost pool.

How are variable and fixed costs different from one another and how do they relate to direct and indirect costs? Answer: A variable cost changes in total proportion to changes in the related level of total activity or volume. A fixed cost remains unchanged in total for a given time period over a relevant range of volume. A cost may be either direct and variable or direct and fixed. Another cost may either be indirect and variable or indirect and fixed.

What distinguishes two manufacturing cost classification systems: direct and indirect, prime and conversion? Answer: A direct cost is any cost that can be traced to the cost object in an economically feasible way. All direct costs are defined as prime costs. Indirect costs are related to a specific cost object but cannot be traced in an economically feasible way. All indirect manufacturing costs are conversion costs that may also include direct manufacturing labour. Classification of direct and indirect depends on the cost object.

Summarize effective communication strategies in organizational hierarchies, and review the role and relevance of the organizational grapevine Some companies try to encourage communication through workspace design, as well as through Web-based communication channels. some executives also meet directly with employees, such as through management by walking around (MBWA) and town hall meetings, to facilitate communication across the organization. In any organization, employees rely on the grapevine, particularly during times of uncertainty. The grapevine is an unstructured and informal network founded on social relationships rather than organizational charts or job descriptions. Although early research identified several unique features of the grapevine, some of these features may be changing as the Internet plays an increasing role in grapevine communication.

Explain how to get your message across more effectively, and summarize the elements of active listening To get a message across, the sender must learn to empathize with the receiver, repeat the message, choose an appropriate time for the conversation, and be descriptive rather than evaluative. Listening includes sensing, evaluating, and responding. Active listeners support these processes by postponing evaluation, avoiding interruptions, maintaining interest, empathizing, organizing information, showing interest, and clarifying the message.

Discuss various barriers (noise) to effective communication, including cross-cultural and gender-based differences in communication  Several barriers create noise in the communication process. People misinterpret messages because of misaligned codebooks due to different languages, jargon, and use of ambiguous phrases. Filtering messages and information overload are two other communication barriers. These problems are often amplified in cross-cultural settings where the above problems occur along with differences in meaning of nonverbal cues, silence, and conversational overlaps. There are also some communication differences between men and women, such as the tendency for men to exert status and engage in report talk in conversations, whereas women use more rapport talk and are more sensitive than are men to nonverbal cues.

Explain how social acceptance and media richness influence the preferred communication channel The most appropriate communication medium partly depends on its social acceptance and media richness. Social acceptance refers to how well the communication medium is approved and supported by the organization, teams, and individuals. This contingency includes organization and team norms, individual preferences for specific communication channels, and the symbolic meaning of a channel. A communication medium should also be chosen for its data-carrying capacity (media richness). Non-routine and ambiguous situations require rich media. However, technology-based lean media might be almost as effective as rich media for transferring information. This particularly occurs where users can multi-communicate and have high proficiency with that technology, and where social distractions of high media richness channels reduce the efficient processing of information through those channels. These c

Compare and contrast the advantages of and problems with electronic mail, other verbal communication media, and nonverbal communication The two main types of communication channels are verbal and nonverbal. Various forms of Web-based communication are widely used in organizations, with email the most popular. Although efficient and a useful filing cabinet, email is relatively poor at communicating emotions; it tends to reduce politeness and respect; it is an inefficient medium for communicating in ambiguous, complex, and novel situations; and it contributes to information overload. Facebook-like websites, wikis, virtual reality platforms, and other forms of social media are gaining popularity in the workplace. Social media include Web-based tools (websites, applications, etc.) that allow users to generate and exchange information. They serve several functions, including presenting the individual's identity, enabling conversations, sharing information, sensing the presence of o

Explain why communication is important in organizations and discuss four influences on effective communication encoding and decoding ? Communication refers to the process by which information is transmitted and understood between two or more people. Communication supports work coordination, organizational learning, decision-making, changing others' behaviour, and employee well-being. The communication process involves forming, encoding, and transmitting the intended message to a receiver, who then decodes the message and provides feedback to the sender. Effective communication occurs when the sender's thoughts are transmitted to and understood by the intended receiver. Four ways to improve this process is for both sender and receiver to be proficient with the communication channel, have similar codebooks, have shared common mental models of the communication context, and for the sender to be experienced at sending that message

What is the treatment and prognosis for renal cell carcinoma? For bladder tumors? Answer: Renal cell carcinoma treatment include surgical removal of diseased kidney. Immunotherapy may be helpful for some. Prognosis is best with early treatment. Bladder tumors treatment include is surgical removal of bladder lesions. Multidrug chemotherapy may help shrink tumor and increase survival time. Stage us the most important independent prognostic indicator for disease progression and overall survival.

When may catheterization be indicated? Answer: Catheterization may be indicated before surgery or after surgery to relieve urinary retention, to obtain a sterile urine specimen, to irrigate the bladder, or to treat urinary incontinence.

How would you compare the pathology of neurogenic bladder to that of stress incontinence? Answer: Neurogenic bladder is the difficulty emptying bladder, or incontinence. Caused by damaged nerves to lower urinary tract. No cure, but quality of life can be improved. Stress incontinence is the uncontrolled leaking of urine during common activities. Caused by weakened pelvic floor muscles. Condition can be improved and possibly cured.

How would you describe the polycystic kidney? Answer: In the polycystic kidney, normal renal tissue is replaced with multiple grapelike cysts in both kidneys. They become dilated and enlarged and are palpable on physical examination.

How does diabetes mellitus contribute to diabetic nephropathy? Answer: High blood glucose levels and high blood pressure may hasten the deterioration of renal function, resulting in the condition of diabetic nephropathy.

What are the etiologic sources of infectious cystitis and urethritis? Answer: Cystitis and urethritis are the medical terms for inflammation of the bladder and urethra. Most of the time, the inflammation is caused by a bacterial infection, and it's called a urinary tract infection (UTI).

What are the risk factors for renal calculi? Answer: Renal calculi risk factors include heredity, male, and individual between 30-60 years old.

Which condition is a complication of urinary tract obstruction? What are some causes of urinary tract obstruction? Answer: Hydronephrosis is a complication of urinary tract obstruction. Causes include congenital defects, scar tissue, and tumors.

How might organisms be introduced into the urinary tract and cause pyelonephritis? Answer: Catheterization or diagnostic procedures such as cystoscopy can introduce organisms into the urinary bladder.

How would a patient with pyelonephritis describe his or her symptoms? Answer: Pyelonephritis symptoms include chills, fever, and nausea.

When is renal failure irreversible? Answer: Renal failure is considered irreversible when renal perfusion cannot be restored and permanent kidney damage has occurred.

Why is acute renal failure considered a clinical emergency? Answer: ARF qualifies as a clinical emergency because nitrogenous waste products quickly accumulate in blood, causing an acute uremic episode.

What are the classic clinical symptoms and signs of nephrosis? What causes nephrosis? Answer: Etiologic factors of nephrosis include renal damage with increased permeability of the glomerulus. Nephrosis may be the result of exposure to toxins, certain drugs, or, allergic reaction. Symptoms of nephrosis include bloody urine, loss of appetite, and pale skin. Signs of nephrosis include proteinuria, hypertension, and hematuria.

Which individuals may require dialysis? Kidney transplant? Answer: Dialysis may be required by individuals with renal failure (acute or chronic). Dialysis or kidney transplantation or both may be required by individuals with irreversible renal failure or end-stage renal disease. Kidney transplant are for people with diabetes adrenal failure, hypertensive renal disease, and glomerulonephritis.

What are some examples of abnormal findings in a urinalysis? Answer: Abnormal findings in a urinalysis include atypical levels of white blood cells and red blood cells; foul smell, cloudy appearance, or abnormal alkaline pH.

What are the etiologic factors of acute glomerulonephritis? For chronic glomerulonephritis? Answer: Acute glomerulonephritis usually follows an infection caused by group A beta-hemolytic streptococcus; idiopathic or may result from an immune reaction. Chronic glomerulonephritis, an immune mechanism is suggested to be a major cause; other causes are primary renal disorders and systemic disorders like SLE.

What are some of the common symptoms of urinary system diseases? Answer: Urinary disease symptoms include decreased urinary output, edema, and hypertension.

Specifically, how does the urinary system work to maintain homeostasis? Answer: The urinary system cleanses the blood of waste products from metabolism and regulates the normal balance of water, salts, and acids in body fluids. The kidneys secrete renin, a hormone that raises blood pressure, and erythropoietin, which acts as a stimulus to red blood cell production and plays a role in the activation of vitamin D.

What steps are recommend to prevent lung cancer? Answer: Prevention measures for lung cancer include the avoidance of smoking and passive exposure to smoke, polluted air, and pulmonary irritants. Prognosis improves with early intervention from surgery, radiation, and chemotherapy.

How would you describe the pathology in a patient with ARDS? Answer: Acute lung injury is considered secondary to severe trauma or increased capillary permeability in the lungs, pulmonary edema, and resulting respiratory failure. Patient may also have rales, rhonchi, and wheezes.

Why is pulmonary tuberculosis more prevalent and difficult to treat today? Answer: Many strains of tuberculosis resist the drugs most used to treat the disease. People with active tuberculosis must take several types of medications for many months to eradicate the infection and prevent development of antibiotic resistance.

What is the treatment for a hemothorax and a pneumothorax? Answer: To treat hemothorax and pneumothorax, the lung must be re expanded. Thoracostomy is performed with closed drainage to withdraw fluid or air. The patient is positioned to breathe more easily in the Fowler's position, and oxygen is given.

Why is pneumoconiosis considered an occupational disease? Answer: Progressive, chronic inflammation and infection in the lungs are the result of long-term inhalation of inorganic dust particles present in the occupational environment. Examples includes asbestos fibers, carbon deposits, and quartz dust.

Are emphysema and bronchiectasis reversible? What are some causes of both conditions? Answer: Both of these disease are not reversible. Bronchiectasis may be caused by repeated damage to the bronchial wall caused by recurrent airway infections. Emphysema may be caused by long-termed cigarette smoking.

How is chronic bronchitis associated with other pulmonary conditions? Answer: As chronic bronchitis progresses, infections are more frequent and last longer. Obstructive and asthmatic symptoms appear and eventually gradual deterioration of the lungs occurs.

To what does COPD refer? Answer: COPD includes asthma, bronchiectasis, chronic bronchitis, cystic fibrosis, emphysema, and pneumoconiosis. The main cause of COPD is tobacco smoking.

Why is influenza considered a serious infection? Answer: Influenza epidemics can cause substantial morbidity, financial loss, and even death. The short incubation period for influenza contributes to rapid spread of the disease.

Who would benefit from influenza immunization? Answer: Anyone who are at risk of getting the flu include children, elderly individuals, and health workers.

How is histoplasmosis contracted? Answer: Histoplasmosis is contracted by the inhalation of dust containing Histoplasma capsulatum. It is more common in the Midwestern United States and is opportunistic in patients with AIDS.

What is the profile of individuals vulnerable to respiratory syncytial virus pneumonia? Answer: Groups at risk for RSV include children younger than 3 years old, elderly individuals, and patients with compromised respiratory systems.

Where does the causative organism of Legionnaires' disease thrive? Answer: Legionella pneumophila thrive in warm aquatic environments such as air conditioning systems, cooling towers, and whirlpool spas.

Why does the patient with pulmonary abscess exhibit foul smelling sputum? Answer: The sputum from a patient with pulmonary abscess contains infectious, purulent material from the abscess, rendering it foul smelling.

What determines the treatment of pneumonia? Answer: Treatment for pneumonia is based on the underlying cause, the organism involved, the severity of disease, and the condition of the patient.

What are some causes of and risk factors for (a) atelectasis and (b) pulmonary embolism? Answer: (a) Atelectasis caused by an obstruction in the bronchial tree; may be mucous plug, foreign object, or bronchogenic cancer. Risk factors include obesity, neuromuscular weakness, and any pulmonary disease. (b) Pulmonary embolism occurs when a blood clot or other material, such as foreign body or tumor, lodges in and blocks an artery in the pulmonary circulation. Risk factors include chest pain, dyspnea, and shock.

What is the prognosis for malignant tumors of the larynx? Answer: Prognosis for malignant larynx tumors is good with early diagnosis and treatment. The most significant prognostic indicator is the statue of the cervical lymph nodes. The overall survival rate is 65%.

How is severe epistaxis treated? Answer: Severe epistaxis is treated with surgical ligation of bleeding artery if other measures fail.

What are the possible causes of nasal polyps? Answer: Nasal polyps is caused from overproduction of fluid in the cells of the mucous membrane. Often the result of allergic rhinitis.