1) You have been hired by McKinsey & Company to design a five-year compensation program for your divisional vice presidents. Because you know that principal-agent conflicts have had a history at this firm, please pen a memo detailing your compensation system design that addresses this problem. Be as specific as needed.
2) You have been retained by Hayek & Company to recommend a distribution system template for projected free cash flow of +79.0, -38.8, +188.7, -5.4, and 6.7 over the 2016-2020-time period. What 10 questions do you need to pose to the C-Suite and the board to make a free cash flow distribution decision that is satisfactory to all involved? Be as specific as needed.
3) Business risk has brought myriad questions from three new independent board members. Discuss operating and financial risk in the context of your projected (i.e., 2015-2020) economic, market, and business cycle for this brewer of high-end craft beers. What factors weigh in on the optimal capital structure if annual growth is projected to exceed 18%, free cash flow is negative, and the debt/equity ratio is 100%? Be as specific as needed.
4) As a board member of Bronson Inc., your SVP-Accounting has recently presented the details of a five-year study of the firm's cash conversion cycle, ironically, the period of time the SVP has been in charge. The executive summary spreadsheet outlines the following (where ICP = inventory conversion period, ACP = average collection period, PDP = payables deferral period, and AVE = industry average).
|
|
ICP
|
ACP
|
PDP
|
CCC
|
AVE |
|
2015
|
48
|
34
|
42
|
40
|
59 |
|
2014
|
51
|
39
|
30
|
60
|
58 |
|
2013
|
41
|
31
|
53
|
19
|
53 |
|
2012
|
38
|
25
|
58
|
5
|
62 |
|
2011
|
31
|
21
|
56
|
-4
|
51 |
What are your questions, compliments, concerns, and recommendations?
5) Your firm has just landed a large client contract in Germany and secured an even larger supplier contract from Mexico. You are in the automobile stereo sound system business with the Detroit Auto Show, your signature event (product, advertising, etc.), and a potential deal with the Chinese and Brazilians projected to be signed and sourced in March and July 2016, respectively. What do you recommend your C-Suite consider and your risk management group do, if anything, about this increasingly international exposure? What financial instruments, if any, would be of help to your firm? Why is your firm even having this discussion?
6) You have just been retained as a strategic consultant to help a 100-year-old firm evaluate its capital budget decision making. Your first look at the firm's prior decision making appears to indicate that management has oftentimes used an approach fraught with repeated biases and heuristics. Your task is to present an introductory session that highlights the inherent risks of adding psychology to finance (i.e., behavioral finance). Outline five common biases or heuristics that may negatively impact profit maximizing capital budgeting decision making and give an example of how each one may lead to a suboptimal decision.