23 Jan If you have poor credit due to being delinquent on credit card debt or other issues, chances are the bank is going to charge
Module 4 Discussion
If you have poor credit due to being delinquent on credit card debt or other issues, chances are the bank is going to charge you a higher interest rate on a personal loan, or it might not give you a loan at all. Corporations face the same problems. If a company takes on too much debt or is otherwise considered to be a credit risk, then it also gets low credit ratings. In this case, if it wants to take on more debt it needs to issue what is known as “junk bonds,” or as corporations prefer to call them, “high-yield bonds.”
Whatever you call these types of bonds, their key feature is that they pay higher interest than bonds from a corporation that has a high credit rating. If you have a 401(k) or other retirement investment fund, chances are you have the option to make a portion of your investment in these higher risk/higher return bonds.
Do some research on junk bonds. What kind of controversies do you see with them? Do you think they are a solid investment for your retirement, perhaps no riskier than most investments? Or do they deserve the derogatory term “junk”? Share the links to the articles you find with your classmates, and discuss your opinions as to whether you think the higher interest rate justifies the increased risk.
Please see attached Reading Material & Student Guide to writing a high quality
Module Overview
In a corporation's capital structure, there are advantages and disadvantages to having debt. Corporations receive a tax deduction from the interest paid on debt. On the other hand, dividends are not tax deductible. This helps to reduce the cost of debt since the after-tax cost of debt is used in the weighted average cost of capital and not the pre-tax cost of debt. The cost of equity is usually much higher and can be estimated through the Capital Asset Pricing Model (CAPM). If a firm is very successful, the stockholders don’t have to share the profits with debtholders since the return on debt is not a variable.
There are some problems with debt, though. As a company uses more debt in its capital structure, it increases the company’s risk. This increases the costs of equity and debt. If a company has financial problems and can’t cover its interest charges, the firm may have to go bankrupt if it can’t obtain additional financing.
Firms that have quite variable earnings and operating cash flows are better off having limited debt in their capital structures. Companies with more stable earnings and operating cash flows can utilize more debt in their capital structures.
Business risk is probably the most important factor that drives capital structure decisions. Business risk is the riskiness of a company’s operations if it doesn’t utilize debt. Financial risk is the increased shareholder risk from the use of debt in the capital structure. There’s no set optimal capital structure for all firms.
An investor’s total return consists of the capital gains yield and the dividend yield. Not all companies pay dividends; however, for those that do, it is an important component of an investor’s return, particularly for those seeking income. Individuals who are retired are usually the clientele most interested in dividends. If a stock’s price didn’t change all year, yet the company paid a healthy dividend yield, the investor would still earn a positive total return.
Successful companies typically accumulate a large amount of cash on their balance sheet. If the company has funded all the positive NPV projects that it wants to, it can look to paying a dividend or buying back stock. If it currently already pays a dividend, it can look to increase the dividend.
A company that institutes or increases a dividend provides a signal to the marketplace that it anticipates higher future cash flows, because once a company starts or increases a dividend, it rarely reduces or eliminates the dividend. On the other hand, a company that decreases its dividend or eliminates a dividend provides a signal to the marketplace that it anticipates lower future cash flows.
Note: photo courtesy of Nick Youngson (http://nyphotographic.com/). License: Creative Commons 3 - CC BY-SA 3.0
Module 4 – Reading Background Material
LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY
Required Reading
Capital Structure
Start with this interactive tutorial from Pearson that will give you a short overview of the main topics from this module:
Capital Structure and Dividend Policy Interactive Tutorial . (2014). Pearson Learning Solutions, New York, NY.
Now go through the following tutorials from Investopedia which include some videos. Start out with the tutorial on degree of operating leverage, then scroll down to the sections on earnings before interest and taxes and degree of financial leverage:
Degree of operating leverage. (n.d.). Investopedia. Retrieved from: http://www.investopedia.com/terms/d/degreeofoperatingleverage.asp
Now dive deeper into the concepts of capital structure with the following two book chapters. Pay special attention to the concepts of operating leverage, financial leverage, business vs. financial risks, and the major theories of capital structure choices. While the tutorials above will give you a broad overview of the main topics, the following readings have worked out problems and solutions that will be essential for completing the Case Assignment:
Gitman, L. (2005). Chapter 11: Leverage and capital structure. Principles of Managerial Finance. Pearson Education. Retrieved from: wps.aw.com/wps/media/objects/222/227412/ebook/ch11/chapter11.pdf If the link is down, click Leverage and Capital Structure or Managerial Finance for an alternative link]
Brigham, E. & Houston, J. (n.d.). Chapter 13: Capital structure and leverage . Fundamentals of Financial Management. Cengage Learning.
Finally, take a look at the following book chapter on dividend policy. Take a close look at the concepts of regular dividend policy and low-regular-and-extra dividend policy, as well as stock splits and stock repurchases:
Gitman, L. (2005). Chapter 12: Dividend policy. Principles of Managerial Finance. Pearson Education. Retrieved from: wps.aw.com/wps/media/objects/222/227412/ebook/ch12/chapter12.pdf [If the link is down click Dividend Policy or Managerial Finance for an alternative link]
Optional Reading
Obi, P. (2014). Capital structure and financial leverage. Purdue University. Retrieved from: https://www.youtube.com/watch?v=xKBdJX-rHMg
Ahmad, A. (n.d.) Firm debt part 1: Calculating how much to borrow. Coursera. Retrieved from: https://www.coursera.org/learn/finance-debt/lecture/0P8l0/firm-debt-part-1-calculating-how-much-to-borrow
Sexton, N. (2010). Introduction to dividend policy. LSBF Global MBA. Retrieved from: https://www.youtube.com/watch?v=wPVdxCJ2iCI
Boundless. (n.d.). Chapter 13: Capital Structure. Boundless Finance. Retrieved from: https://www.boundless.com/finance/textbooks/boundless-finance-textbook/
Boundless. (n.d.). Chapter 15: Dividends. Boundless Finance. Retrieved from: https://www.boundless.com/finance/textbooks/boundless-finance-textbook/dividends-15/
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Rubric Name: MBA/MSHRM/MSL Discussion Grading Rubric – Timeliness v1
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Student Guide to Writing
a High-Quality Academic Paper
Follow these guidelines when writing academic papers,
including your Case and SLP assignments.
2
An effective academic writing style is an essential part of a
university education.
Poorly written papers detract from your ability to effectively share
your knowledge and ideas with others, including your professors.
This guide will help you prepare high-quality papers that are:
▪ Logically argued
▪ Clearly structured and formatted
▪ Written in a professional, academic style
The basic structure of an academic paper includes:
3
1. Cover page 2. Introduction 3. Body of the
paper (which may have subsections) 4.
Conclusion 5. Reference page
The cover page of an academic paper should
include the:
▪ University name ▪ Student’s name ▪
Assignment title ▪ Course number and name
▪ Professor’s name ▪ Date Note: Some professors recommend adding the assignment instructions
(tasks and/or questions) to the bottom of the cover page to help students
make sure they have addressed each part of the assignment.
4
University Name
Student’s Name
Module 1 Case Assignment
Course Number: Course Name
Professor’s Name
Date
In the introduction, provide a brief, clear overview of:
1. Each problem or issue that you will discuss
2. The solution to the problem(s) or your response to the
issue(s)
5
3. How you will prove or demonstrate that your solution or
response is correct
Tip: Try writing the body of your paper first. Then come back
and write the introduction once you know what your paper is
about.
6
The body of the paper is where you discuss the solution to the problem(s)
or your response to the issue(s) raised in the assignment.
After you have read the materials related to the assignment, begin by
creating a quick outline:
▪ What are the main points of your argument? Jot them down.
▪ Depending on the length of the paper, 3–6 main points should be
plenty.
▪ If a point is complex, it may have 2 or 3 sub-points. Jot those down as
well.
▪ Now arrange those points in a logical sequence.
▪ Which point needs to be made first because it provides a basis
for the points that follow?
7
▪ For example, “Point A leads to point B, which leads to point C, and
when A, B, and C are considered together they mean that the
solution is point D.”
Example of the structure of a Case Assignment that requires 4 pages of
text (not including the cover page, and not including a reference page for assignments that require one):
Main Sections Points Sub-points Page # # of Paragraphs
Cover Page
Introduction 1 1
Body of Paper Point A 1 1
" Point B 2 1
" Sub-point 1 2 1
" Sub-point 2 3 1
8
" Point C 3 1
" Point D 4 2
Conclusion 4 1
Reference Page
In the body of your paper:
Use headings and subheadings to help your reader follow the points and sub-
points in your discussion and to better organize sections and subsections.
Give each point and sub-point a short name that tells your reader what that section
is about. Use those names for your headings.
Here is a quick “how-to” guide to headings with links to examples and instructions:
http://blog.apastyle.org/apastyle/2011/04/how-to-use-fivelevels-of-heading-in-an-
apa-style-paper.html
Now you are ready to begin writing the body of your paper.
9
▪ Discuss one point at a time and explain each point clearly.
▪ Discuss one point or sub-point in each paragraph.
▪ As you advance to writing more complex papers (e.g., upper-division
undergraduate or master’s-level assignments), it may take 2 or 3 paragraphs to
fully develop and support a point.
10
In the body of your paper:
Each paragraph should be made up of approximately 3–5 sentences. (Note: A
single sentence is not a paragraph. Break long sentences into 2 or 3 shorter
ones.) Each paragraph should include:
▪ The point or focus of that paragraph in the first sentence
▪ Additional sentences in which you explain, elaborate, and support your point
(see section on Supporting Your Points that begins on the next slide)
▪ A conclusion/transition to the next point and paragraph
Each point should be supported by citing and referencing the sources that provide
the foundation for your solutions and/or responses. How to do this will be
discussed on the next slide.
Supporting Your Points
What makes an academic paper “academic”? How does an academic
11
paper differ from other types of writing—for example, a short story, a blog, a
newspaper article, a business letter, or an e-mail message?
In an academic paper:
▪ You must provide support for each idea, statement, or point that you make that
is based on someone else’s ideas.
▪ Support is provided through citations and references. (References are
discussed beginning on Slide 17.) Citations appear within the paper itself
wherever you draw upon another person’s ideas or another source of
information. References are listed on a separate page at the end of your
paper.
▪ Each citation refers to a specific reference so that your reader can look up the
sources of your support and read them for himself or herself.
▪ Citations are short and usually only include the author’s last name and the
date of publication of the author’s work, for example, “In a study of K–12
education, Jones (2013) found that…”
12
Citation Examples
You can cite at the beginning or ending of a sentence:
▪ According to Jones (2007), a reason for poor student performance is large
classroom size.
▪ Student performance decreases as classroom size increases (Jones, 2007).
When multiple sources support your point, cite them together in alphabetical order
at the end of the sentence:
▪ Educators agree that large classroom size decreases student performance
(Adams, 2005; Jones, 2007; Smith, 2008).
When a source is written by more than one person, give their last names in the
citation at the end of the sentence, like this: (Smith, Adams, & Jones, 2006).
When there is no author and/or no date (e.g., a Web page), see this example:
http://www.apastyle.org/learn/faqs/web-page-no-author.aspx
13
Do not spell out the titles and publication details of your sources in the body of your
paper. Instead, provide a short citation, and add a full reference with the publication
details in your reference list. Interested readers can then find the details about the article
in your reference list at the end of your paper.
Wrong:
The first article that will be discussed is called “The Very Separate Worlds of Academic
and Practitioner Periodicals in Human Resource Management” written by Sara Rynes,
Tamara
Giluk, and Kenneth Brown, which was published in the Academy of Management Journal
(2007) Vol 50, No.5, 987-1008. They studied the gap between academic and practitioner
knowledge.
▪ Note: Do not spell out the title and publication details of your sources in the text. Right
(two different ways):
1. Rynes, Giluk, and Brown (2007) found a gap between academic and practitioner
knowledge.
▪ Note: The authors are the subject of the sentence. This is referred to as an “in-text citation” and
includes just the authors’ last names and year of publication.
14
2. A gap was found between academic and practitioner knowledge (Rynes, Giluk, & Brown,
2007). ▪ Note: The citation is placed at the end of a sentence in parentheses. This is called a
“parenthetical citation.” In this type of citation, use an ampersand (&) instead of “and.”
When should you cite a source?
When you use your own words in referring to the ideas or concepts of others
When you use the exact words that are written in one of the sources that you read
▪ Using someone else’s exact words is called a “quotation.”
▪ For quotes of less than 40 words, use quotation marks and follow the quote with a
parenthetical citation that includes:
▪ The name(s) of the author(s)
▪ The year of publication
▪ The page number the quote was taken from in the original source— for
example:
15
“Academic and practitioner periodicals in human resource management are
worlds apart” (Rynes, Giluk, & Brown, 2010, p. 992).
▪ Any phrase or quote of 40 or more words should be separated from the text of
your report by single spacing and by indenting from the both right and left margin.
This is called an “offset quote.”
Provide Support for Each of Your Points
Scholarly academic work builds on previous knowledge and recognizes the contributions that others
have made to knowledge.
Providing a citation for each source of information that you use is necessary for at least four
reasons:
▪ To help your reader understand the foundational information that you used to support your
points.
▪ To give credit to sources of knowledge and the work of others.
▪ To protect the source. If you make a good point but don’t cite your sources or indicate direct
quotes with quotation marks, the reader will attribute it to you by default.
16
▪ To avoid plagiarism. Incorporating material from outside sources (whether direct quotes or
paraphrasing) without proper identification or citation is a form of plagiarism. Never represent
the work of another as your own.
Here is an excellent guide to help you understand plagiarism and how to avoid it (students are
strongly encouraged to study it carefully):
University Libraries, University of Missouri (n.d.). Plagiarism Tutorial. Retrieved March 1, 2013,
at http://lib.usm.edu/legacy/plag/plagiarismtutorial.php
In your conclusion:
▪ Summarize your argument regarding the solutions/responses that
you discussed in the body of your paper, including the most
important points you made and how they relate to your overall
conclusion.
17
▪ Do not discuss or raise new issues in the conclusion.
▪ Limit the conclusion to 1 or 2 paragraphs.
The reference section, found at the end of the paper, is an alphabetical list of the
sources that you used to write your paper.
Center the word “References” at the top of a new page.
Starting on the same page, enter a full reference for each citation in your paper. Provide
only one reference for each source no matter how many times you cite it in your paper.
▪ Each reference should include the following information (so readers can find the
source):
▪ Author’s last name, first initial, middle initial
▪ Year of publication
▪ Title of the article, book, or Web page
18
▪ Title of the publication where the article was found (If the article is from a
journal or newspaper, include the volume and issue number, and the pages
where the article is located.)
Reference section formats for different types of sources:
Article on a Web page with no date:
▪ Author last name, first initial, middle initial (publication date). Title of the article. Retrieved
X date from http://
▪ Example (note that the second line of the reference is indented five spaces):
Dvoretsky, D. P. (n.d.). History: Pavlov Institute of Physiology of the Russian Academy of
Sciences. Retrieved March 1, 2013, from http://www.infran.ru/history_eng.htm
Online newspaper article:
▪ Author name (year, month, day of publication). Article title. Newspaper Title. Retrieved X
date from http://
▪ Example (note that the second line of the reference is indented five spaces):
Hilts, P. J. (1999, February 16). In forecasting their emotions, most people flunk out. The New
York Times. Retrieved March 1, 2013, from http://www.nytimes.com
Academic Journal Article:
▪ Author name, first initial, middle initial (publication year). Article title. Journal Title, vol.
19
#(issue #), page numbers where the article was found.
▪ Example (note that the second and third lines of the reference are indented five spaces):
Shapiro, D., Kirkman, B., & Courtney, H. (2007). Perceived causes and solutions of the
translation problem in management research. Academy of Management Journal, 50(2), 249-
266.
Book: Author name (publication year). Book Title. Location: Publisher.
▪ Example: Fitzgerald, S. P. (20
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