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Using Microsoft Corporation to Demonstrate the Optimal Capital Structure Trade-off Theory
No full textIn this paper, we apply the trade-off theory of capital structure to Microsoft. We use data for bond ratings, bond risk premiums, and levered CAPM betas to compute the cost of equity and the weighted average cost of capital for Microsoft at different debt levels. This study shows the impact of increasing financial leverage on WACC. As financial leverage increases, the WACC decreases until the optimal debt ratio is reached, after which, the WACC begins to rise. At this debt ratio, the value of Microsoft will be maximized. Our results indicate the optimal debt ratio for Microsoft is 37.5 percent
The Term Structure of Interest Rates and Unconventional Federal Reserve Monetary Policy
No full textThe term structure of interest rates argues that a fundamental determinant of the Treasury yield curve is expected future short-term interest rates. In early 2013 it is possible to construct a predicted yield curve based on future expectations, and compare it to the actual yield curve. Due to the unconventional Federal Reserve policies that began in 2008, the actual yield curve lies well below that predicted by the term structure theory. Our research indicates that the cumulative impact as of January 2013 of the unconventional Fed monetary policies is to decrease the 10-year Treasury yield by about 80 basis points
Repeat After Me: An Experiment in Learning
No full textGenerations of students have stumbled over the distinction between moving along and shifting a demand curve. Simple verbal repetition seems to help cement this difference. In classroom experiments, students who stood and recited the concept aloud performed better on a subsequent exam question than other students. Moreover, the difference persisted onto the final exam even after controlling for differences in student ability and exam preparation. While other active-learning methods might produce similar results, verbalization requires almost no time or instructor effort. It takes only a few seconds and there is nothing to read or grade
The Influence of Aggregate Demand Elasticity On The Federal Budget Deficit
No full textThis paper examines the implications of aggregate demand elasticity for the federal budget deficit when macroeconomic shocks occur. We obtain two results with the graphical analysis. First, and for an adverse change to short-run aggregate supply, the decrease in real gross domestic product and the resulting increase in the budget deficit is larger the more elastic is aggregate demand with respect to the general price level. Second, and when a negative shock to aggregate demand occurs, the decrease in real gross domestic product and the consequent increase in the budget deficit is larger the smaller is the price level elasticity of aggregate demand
Attraction and Retention of Faculty in a Non-Tenure Granting Environment
No full textThis paper examines the task of attracting and retaining faculty in a non-tenure granting environment. Our goal is to provide a framework for the future discussion of this issue and to develop a set of utility functions for the primary parties involved, namely, institutions of higher education and individual faculty members. Various strategies for attracting and retaining faculty members in a non-tenure-granting environment are evaluated in terms of their long-run implications
Use of Review Videos to Reinforce Basic Concepts in Economics
No full textShort, weekly review videos were incorporated into two sections of introductory Microeconomics. These videos represent a form of technology for students to review concepts already covered, rather than in the initial teaching of material. The purpose of these videos was to improve the knowledge and comprehension levels of learning for the material, thus providing space for increased breadth and depth in the classroom. Students in the class had a positive reception to the video, as show in the high level ofutilization throughout the semester. Additional analysis did not find a statistically significant impact on student performance
The Influence that Time Costs and Money Costs Have on Work Incentives: An Application of Childcare Subsidies
No full textWhen deriving an individual\u27s labor supply curve, most labor economics textbooks ignore any monetary or time costs associated with working. However, students realize that this assumption is not realistic, particularly for working parents who have children in daycare. The author presents an analysis of how both monetary and time costs associated with working influences an individual’s reservation wage. Additionally the author compares how the aggregate supply of hours offered within a firm is influenced by that firm adopting a childcare subsidy benefit that either reduces the monetary costs or time costs associated with have a child in daycare
What “The Simpsons” Can Teach Us About Sports Economics
No full textThis paper provides an insight into the teaching of economics. Using sport and The Simpsons one can do some of the heavy lifting when teaching the subject, as these topics generally engage students and provide ample analogies from which one can explore and discuss key economic concepts. The paper does not seek to provide a deep examination of the economics of sport, but merely to illustrate how The Simpsons and sport can be used to teach fundamental economic concepts
Clarifying the Meaning of Noninteger N Values in Annuity Calculations
No full textTime value of money problems are integral to finance. We focus attention on the issues raised when a noninteger solution results from solving for the variable N (number of periods) in a time value of money annuity problem. We show that such a numerical solution, while mathematically correct, can deviate from the narrative of the problem. This deviation from the narrative could cause misunderstandings between instructors and their students and practitioners and their clients. We demonstrate how instructors and practitioners can explain the deviation from the narrative in such cases, and how cash flows can be adjusted to avoid missing goals
Teaching Margin Trading and Financial Leverage Together
No full textMargin trading and financial leverage are typically taught separately from each other. In this study, we present a pedagogical approach with a dual focus on margin trading and financial leverage. We borrow the insights and tools from financial leverage in a corporate setting and apply them to margin trading as a special case of financing an investment using debt and equity. In addition to producing a simple and intuitive formula for performance calculations on a margin trade, our approach offers the benefit of improving students\u27 understanding of how margin trading and financial leverage operate in general