Courtney Gatter was a sales representative for IKA. The company was owned by the Stiegelmann family, which included René (who worked for the company), and his son, Marcel (who did not). Gatter reported to Refika Bilgic, who was both managing director and Rene’s romantic partner. Gatter was aware of rumors linking René romantically with various female employees. The company took all of its employees (and Marcel) on a sailing trip in the Mediterranean. Gatter had never met Marcel before the trip. On the first day, while Gatter was reclining on deck, René snapped a photograph “up her shorts.” Marcel, who did not have an assigned bedroom, had been sleeping on deck. On the third night, he complained that this arrangement was uncomfortable and asked Gatter if he could sleep in her room. Once in her room, they kissed and he suggested sexual intercourse, but Gatter rejected his advance. Because Gatter knew that René had liaisons with female employees, she felt “damned if she did, and damned if she didn’t” accept Marcel’s advances. Ultimately, Gatter gave in. Although René was upset when he learned that his son and his employee were in a sexual relationship, the affair continued during the trip. As the ship sailed on, Gatter grew more and more uncomfortable with the sexualized environment. On two occasions, she saw René naked: once while he was exiting the shower into a common area on the boat and, on another day, as a towel blew up while he changed into his bathing suit on the beach. On the final day of the trip, Gatter apologized to Bilgic and René for her affair with Marcel. René then berated her, asking her, “How can you spread your legs after the second day?” He gave Gatter an ultimatum: quit working for IKA or break up with Marcel, Gatter agreed to end the relationship. Although Marcel and Gatter never met again, they did continue to text. When Bilgic found out, she fired Gatter. Gatter filed suit against IKA alleging sexual harassment. IKA filed a motion for summary judgment. Issue: Was Gatter sexually harassed? Excerpts from Judge Beetlestone’s Decision: To prevail, Gatter must show that: 1) she suffered intentional discrimina5tion; 2) the discrimination was severe or pervasive; 3) the discrimination detrimentally affected Gatter; 4) the discrimination would detrimentally affect a reasonable person in like circumstances; and 5) the [employer’s] liability. [T]he “intent” element of a hostile work environment claim refers only to whether the behavior was intentionally based on a protected status, not on whether the alleged harasser intended hostility or abuse. The incident which occurred when Gatter saw René toweling himself off after a shower was undisputedly unintentional. The second incident – which occurred when René changed into a bathing suit on a public beach guarded only by a towel – also falls short of intentional discrimination. While changing clothes on a public beach during a company-sponsored trip may exhibit poor judgment, there is no evidence that René intended to expose himself. [Whether the photograph] can be perceived as intentional discrimination a close call. [T]he fact that the photo provides a view “up Gatter’s shorts” could allow a reasonable jury to conclude that the photograph was an intentional act based on Gatter’s sex………………. Required: a. Did this case go to trial? b. If the case is not settled, who will decide whether the events constituted sexual harassment? c. What proof was there that sexual harassment may have occurred? d. Does it matter that Gatter eventually agreed to have sex with Marcel? e. Do you think that Marcel’s position as a part-owner of Gatter’s employer is relevant to a decision about whether or not sexual harassment occurred? f. Does René’s demand that Gatter either stop seeing Marcel or leave her employment connect the harassment and her employment?
> A company can issue new 20‐year bonds at par that pay 6‐percent annual coupons. The net proceeds to the firm (after taxes) will be 96 percent of par value. They estimate that new preferred shares providing a $2 annual dividend could be issued to investor
> A firm has the following balance sheet items: The before‐tax interest cost on new 15‐year debt would be 7 percent, and each $1,000 bond would net the firm $972 after issuing costs. Common shares could be sold to net th
> A firm has the following capital structure based on market values: equity 60 percent and debt 40 percent. The current yield on government T‐bills is 3 percent, the expected return on the market portfolio is 10 percent, and the firm’s beta is approximated
> Explain how to estimate the cost of debt and preferred equity for a firm.
> How do flotation costs affect the cost of capital sources for a firm?
> Describe the Fed model and how it may be used to estimate the required rate of return of the market as a whole.
> What are some of the disadvantages of carrying inventories?
> How can we relate the existence of multiple growth stages to four commonly used firm classifications?
> How are the ROE and Ke related to a firm’s growth opportunities and its M/B ratio?
> Why is the earnings yield not usually an adequate measure of the investor’s required return on equity?
> Suppose a firm uses a constant WACC to calculate the NPV of all of its capital budgeting projects, rather than adjusting for the risk of the individual projects. What errors will the firm make in its capital budgeting decisions?
> Montreal Brokers, a small brokerage firm and PEI tronics, a software development company, are both separately considering developing and marketing a new software package. Neither party is aware that the other is considering this project, and it is not at
> A firm is going to finance a new project 100 percent with debt, through a new bond issue. Since the firm is using only debt to finance the project, the NPV of the project should be calculated using the cost of debt as the discount rate. Is this statement
> What is Altman’s Z score and what does it measure?
> Explain how ratios may be used to assess a company’s ability to assume more debt.
> Explain the static trade-off theory.
> Why can the firm’s debt be viewed as the exercise price to the shareholders’ option to purchase the firm?
> What are some of the advantages of carrying inventories?
> Explain the impact of financial distress and agency costs on M&M’s conclusions regarding capital structure.
> Describe how we determine the ROE and EPS indifference points for a firm based on various financing alternatives, and explain why this analysis provides the firm with useful information.
> What are the three rules of leverage?
> How does financial leverage affect the relationship between ROI and ROE?
> Define business risk and financial risk.
> Your cousin has just started his MBA and is confused. He understands that without taxes, capital structure is irrelevant. He also understands that with taxes, firms should use 100‐percent debt. However, his professor is saying that with taxes, there are
> Gus Fitzgerald, a local shipping tycoon, is very confused. He has issued stock to finance a positive NPV investment. He expected the stock price to rise, as positive NPV projects are supposed to increase shareholder value. However, the stock price fell!
> Describe the relationship between the debt ratio and firm value when we consider the existence of bankruptcy costs. How do you view the agency costs when bankruptcy occurs?
> State the two possible ways bankruptcy can occur. What is the role of a monitor appointed by the court under the Companies’ Creditors Arrangement Act ( CCAA )? Compare the difference of recognizing firm bankruptcy under CCAA and the Business Insolvency A
> Describe the factors that can affect a firm ’ s capital structure in practice.
> What are captive finance companies?
> What important issues does the static trade‐off model ignore?
> In the M&M tax world, calculate the value of the unlevered firm (U) and the identical risk-levered firm (L). Corporate tax rate = 30%; perpetual EBIT for U and L = $3 million; cost of capital of U = 16%; L’s outstanding debt = $5 million; pre-tax cost of
> In the M&M tax world, what is the value of levered firm (V L ) in Practice Problem 25 if the tax rate is 30 percent? What is the cost of levered equity? What is the market risk premium (MRP) given U 1 2 . and RF 3%?
> With reference to the M&M irrelevance theorem, calculate the market value of an unlevered firm (U) and an identical risk‐levered firm (L). The expected EBIT of U $2.1 million, which will remain constant indefinitely. The cost of capital is 15 percent. If
> In the M&M no‐tax world, calculate the value of the levered firm (V L ). Cost of unlevered equity (KU) = 16%; cost of debt (KD) = 8%; debt (D) = $500,000; and NI = $480,000. What is the cost of levered equity?
> Calculate the EPS indifference EBIT* level given the following information. The corporate tax rate is 20 percent. Under a 75‐percent D/E ratio, the number of common shares outstanding is 30,000; pre‐tax cost of debt is 10 percent; and outstanding debt is
> Explain the elements of Altman’s Z score as used in Practice Problem 22. Problem 22. Calculate Altman’s Z score for Home Depot in fiscal year 2011 (as of January 29, 2012) and then compare it with Moody â€&#
> Calculate Altman’ s Z score for Home Depot in fiscal year 2011 (as of January 29, 2012) and then compare it with Moody ’ s rating chart. Is this company an IG or non‐ IG? All numbers are in millions.
> Calculate the fixed burden coverage and cashflow- to-debt ratio given the following: EBIT = $680,000; depreciation and amortization = $66,000; preferred dividend = $40,000; sinking fund payments = $15,000; tax rate = 30%; debt = $220,000. Why do analysts
> Use two different methods to calculate ROI given the following information for Brandon Corp. Sales = $400,000 ; Cost of goods sold = $120,000; Interest cost = $20,000; TC = 25%. The firm ’ s debt (B = $250,000) accounts for 25 percent of the invested cap
> State four main motives firms have to hold cash.
> Identify the costs and benefits of holding inventory.
> Marlee and Richard Snowdon bought a house next door to Hal and Carol Dickinson. Carol had owned the house for 30 years; Hal had moved in 10 to 15 years later when he and Carol married. Hal had no ownership interest in the property. The Snowdons decide
> Eighty-five-year-old Francis Gagnon and his wife lived on a farm in Shelburne, Massachusetts. They also owned land in Hillsborough, New Hampshire. They had two children: Joan Coombs, who lived 20 miles from Shelburne, and Frank Gagnon who lived in a tr
> Bright Tunes Music Corp. (Bright Tunes) owned the copyright to the song “He’s So Fine.” The company sued George Harrison, a Beatle, alleging that the Harrison composition “My Sweet Lord” copied “He’s So Fine.” At the time the suit was filed, Allen B. Kle
> Justin Kaiser and Germania became friends while working together at a Ralph Lauren Polo store. When Germania left the store, Kaiser allowed Germania to buy clothing using merchandise credits made out to fake people, and he also allowed her to use his emp
> For decades, Carvel sold its ice cream only through franchised stores. However, a decline in revenues caused the company to begin selling its product in supermarkets. That effort expanded quickly, but many of the franchised stores (franchisees) went out
> David Kline was the station manager and sales manager for Reading Radio, Inc., a/k/a WAGO Radio. As manager, Kline was in charge of supervising the station’s sales representatives. Molly Fink and Isaac Ulrich, two of WAGO’s top sales representatives, had
> Amaani Lyle was a comedy writers’ assistant who worked on the production of the television show Friends. The show revolved around a group of young, sexually active adults, featured adult-oriented sexual humor, and typically relied on sexual language and
> Teresa Harris was a manager at Forklift Systems; Charles Hardy was its president. Hardy frequently made inappropriate sexual comments to Harris and other women at the company. For example, he said to Harris, in the presence of others, "You're a woman, wh
> A New York State task force on teacher qualifications decided that all teachers needed a basic understanding of liberal arts and sciences. National Evaluation Systems (NES), a professional test development company, was hired to develop the Liberal arts a
> Before Title VII, Duke Power hired black employees only in the labor department, where the highest pay was less than the lowest earnings in the other departments. After Title VII, the Company required all new hires for jobs in the desirable departments t
> General Motors was the debtor on two unrelated secured transactions. The first was a $300 million loan (known as the “Synthetic Lease”); the second was a $1.5 billion term loan (the “Term Loan”). JPMorgan Chase Bank was the secured party on both transact
> On December 5, Charles H. Logging (CHL) borrowed $225,000 from Citizens Bank to buy a skidder, and signed a promissory note to repay the money along with a UCC-1 listing the skidder as collateral. The bank filed the form the next day. CHL used the loan t
> Robert Roser obtained a loan from Sovereign Bank which he promptly used to buy a car. Nineteen days later, Sovereign filed a lien with the state of Colorado. The bank expected that, with a perfected interest, it would have priority over everyone else. Un
> Based on the facts in the opening scenario, Brenner filed suit against Belliard and Fell, alleging that they had violated their duty of loyalty to the company. Issue: Did Belliard and Fell violate their duty of loyalty to Pure Power? Excerpts from Judge
> The text offers a hypothetical case concerning Tele Maker, which sells 500 televisions to Retailer, keeping a security interest in the sets and proceeds. Customers sign chattel paper when they purchase on credit. The chattel paper is proceeds, so Tele Ma
> Lila Williams purchased a new Roadtrek 200 motor home from New World R.V. Inc. She paid about $14,000 down and financed $63,000, giving a security interest to New World. The RV company assigned its security interest to Conseco Finance, which perfected. T
> Patrick Kennedy was convicted of raping his eight-year-old stepdaughter L.H. A forensic expert testified that L.H.’s injuries were the most severe he has ever witnessed from a sexual assault. The jury also heard evidence that Kennedy had raped another ei
> Oak Hill Bank loaned Roger and Bonnie Johnson money to buy a mobile home, which they used for family purposes. The bank took a security interest in the vehicle. The Johnsons went bankrupt. Oak Hill had never taken steps to perfect. When the Johnsons appe
> When the debtor pledges securities as collateral for a loan, problems can easily arise concerning the quality of care the creditor provided. In Reed v. Central National Bank of Alva, the debtor borrowed money from the bank and gave convertible debenture
> Charles E. Johnson was the founder and C.E.O. of PurchasePro.com, Inc., and Geoff Layne was its marketing director. When their internet stock went public, both officers suddenly owned shares worth millions of dollars. To increase his liquidity, Johnson t
> Corona Fruits & Veggies (Corona) leased farmland to a strawberry farmer named Armando Munoz Juarez. He signed the lease “Armando Munoz.” Corona advanced him money for payroll and farm production expenses. Corona filed a financing statement, claiming a se
> Jim Henches, a licensed massage therapist, treated Benjamin Taylor after he was injured in a car accident. Henches billed Taylor for more than $7,000. Taylor’s insurance company thought the bill was too high and paid only $2,625 for 24 massages. Henches
> When John Blackwell was seriously injured, he and his wife Ki Tae Lee hired Se Ill Choi to help Lee communicate with her husband’s doctors and perform daily chores. Eventually, Choi moved into the Blackwell home and did everything for them from preparing
> Twenty-one seamen entered into a written contract with the Alaska Packer’s Association (APA) to sail from San Francisco to Pyramid Harbor, Alaska, where they would work as fisherman and sailors during the salmon-fishing season. The workers agreed to perf
> Kenny Willis and his neighbors, Rick and Joyce Taylor, were good friends. Rick helped Kenny repair his truck and Kenny cut the Taylors’s yard because they did not own a lawnmower. One day, while the Taylors were out, Kenny began to cut their grass. Joyce
> Consideration does not require counteroffers. Students may equate “bargained-for” with “haggled-over.” A simple example can demonstrate the meaning of “bargained-for” in this context: Curt offers to mow Pedro’s lawn once a week for $50 beginning May 1 an
> Stephen Son was a part owner and operator of two corporations. Because the businesses were corporations, Son was not personally liable for the debts of either one. Jinsoo Kim invested a total of about $170,000 in the companies. Eventually, both of them f
> William Story wanted his nephew to grow up healthy and prosperous. In 1869, he promised the 15-year-old boy $5,000 if the lad would refrain from drinking liquor, using tobacco, swearing and playing cards or billiards for money, until his twenty-first bir
> In 2010, Congress enacted the Patient Protection and Affordable Care Act (the Act), which aimed to increase the number of Americans covered by health insurance and decrease the cost of health care. The Act required most Americans either to maintain healt
> The Delaware Harness Racing Commission (Commission) hired Donald Harmon to be the Presiding Judge of harness racing (charged with enforcing racetrack rules). After years on the job, Harmon was arrested for improperly changing a judging sheet to favor a h
> Douglas Kent was the Consul General of the United States in Vladivostok, Russia. One evening, he drove from his office to a gym and then home. On the way home, he was involved in an accident that left Aleksandr Kashin severely injured. Kashin sued the Un
> From about 8 P.M. until 2 A.M. the next day, Evans and several coworkers scoured the children’s playground at a McDonald’s restaurant. This special cleaning prepared the restaurant for inspection as part of McDonald’s “spring blitz” competition. At McDon
> Staff Sergeant William E. Dreyer was a recruiter for the United States Marine Corps. Driving to work one morning at 6:40 AM, in a government owned car, he struck and killed 12-year-old Justin Zankel. The child’s parents sued the federal government, claim
> The orchestra in Lancaster, Pennsylvania hired musicians to play about four classical music concerts each year. These musicians could choose to play in however many concerts they wished. They then signed a Musician Agreement, which stated that they were
> Alexandre Van Damme was eager to buy a painting by the artist Gerhard Richter. Nahum Gelber was willing to sell his Richter entitled “A.B. Diffus”. Van Damme hired Christophe Van De Weghe to inspect the painting at the Toronto apartment of Gelber’s son.
> File this case under: What parents will do for their children (whether or not they should). Wachovia Bank loaned Daniel Manley $420,000 and, in return, he gave the bank a promissory note in that amount. His father, Thomas, guaranteed payment of the note.
> Adrenetti Collins was a secretary who worked in the PGA office. During a four-month period, she forged 18 PGA checks totaling $22,699.81. To avoid detection, she intercepted two of the bank statements sent by Whitney National Bank and replaced them with
> During the time that Carol Young worked as an assistant to Brian P. Burns, her salary never exceeded $75,000 a year. But during this period, she opened several credit card accounts with Neiman Marcus on which she charged more than $1 in luxury goods. Alt
> MediaEdge wrote a check for $133,026 on its account at Wachovia, payable to CMP Media. Before CMP received the check, someone changed the name of the payee to Sunjin Choi Choi, and deposited the altered check into Choi’s account at Foster Bancshares. Fos
> John and Nancy Augustine hired Hanover Homes to build a house. They took out a construction loan from South Bend Bank. When directed by the Augustines, South Bend would issue a check payable to John, Nancy, and Hanover; John and Nancy would indorse it an
> The MacNabs purchased property from Richard Harrington’s client. The MacNabs came to the closing with an uncertified personal check drawn on their Merrill Lynch cash management account for $150,128.70. When Harrington called Merrill Lynch, an employee to
> Jeff Messing attempted to cash a check for $976 at a Bank of America branch office. The check was made out to Messing and drawn on the Bank of America. A teller asked Messing to provide identification. Messing presented his driver’s license and a major c
> In the mid-1950s, Richard Boeken began smoking Marlboro cigarettes at the age of 10. Countless advertisements, targeted at boys aged 10 to 18, convinced him and his friends that the “Marlboro man” was powerful, healthy and manly. Eventually, Richard chan
> During the Jewish holidays, Fallsview Glatt Kosher Caterers organized programs at Kutcher’s Country Club, where it provided all accommodations, food and entertainment. Fallsview sued Willie Rosenfeld, alleging that he had requested accommodations for 15
> Joseph Britt, a detective, enrolled in a Master’s Degree program at Chestnut Hill College in Pennsylvania. Chestnut Hill promised students credit for life experience. The college promised Britt important credits for his life experience if he enrolled, an
> Roger DeMasse and five others had been hourly employees-at-will at ITT Corporation for many years. ITT issued an employee handbook, which it revised four times over two decades. The first four editions of the handbook stated that within each job classifi
> Mr. W sells fireworks. Under Texas law, retailers may only sell fireworks to the public during the two weeks immediately before the Fourth of July and during two weeks immediately before New Year’s Day. And so, fireworks sellers like Mr. W tend to lease
> Mason was a surgeon/apothecary in the English town of Thetford. Davis wished to apprentice himself to Mason. The two agreed that Davis would work for Mason and learn his profession. They further agreed that if Davis left Mason’s practice, he would not se
> The Washington, D.C. police suspected Antoine Jones of being a drug dealer. Without a valid search warrant, they attached a GPS tracking device to his car. For 28 days, they used the GPS to determine his whereabouts. Based on this evidence, Jones was con
> Driving along the Nebraska State Highway just after midnight, Dennys Rodriguez briefly swerved onto the highway shoulder, which is a violation of Nebraska law. At 12:06 a.m., Officer Morgan Struble pulled Rodriguez over for erratic driving. Struble quest
> Jeffrey Skilling was president and chief operating officer of Enron Corporation, the seventh largest company in America in terms of revenue. At least, that is what everyone thought. Ten months into Skilling’s term of office, Enron filed for bankruptcy pr
> U.S. law provides that “whoever utters any obscene, indecent, or profane language by means of radio communication shall be fined or imprisoned not more than two years, or both.” The Federal Communications Commission (Commission) has been instructed by Co
> “Mrs. F” was a licensed social worker in Maryland. One of her clients, “John Doe,” was convicted of child abuse and sex offenses involving his minor granddaughter. The Board of Social Work Examiners, an administrative agency, learned that Mrs. F. had lik
> Cyberheat, Inc., ran sexually explicit websites for consenting adults. It hired other companies, called affiliates, to drive potential subscribers to its sites. The affiliates were paid a fee for each subscriber they generated. The contract that Cyberhea
> See the chapter opener. Connie Daniell argued that Ford was both (1) negligent because it did not warn her that there was no opening mechanism in the trunk and (2) strictly liable for this design defect. Ford sought summary judgment. Issue: Was Ford n
> Ibrahim Boumelhem, aged four, began playing with a Bic disposable lighter that his parents had purchased. He started a fire that burned his legs and severely burned his six-month-old brother over 85 percent of his body. Ibrahim’s father sued Bic, claimin
> The Alden Leeds company packages, stores, and ships swimming pool chemicals. The firm does most of its work at its facility in Kearns, New Jersey. At any given time, about 21 different hazardous chemicals are present. The day before Easter, a fire of unk
> On a warm California day, there were about 30 personal water craft (jet skis) operating on Coyote Lake. The weather was fair and visibility good. Anthony Nguyen and Rachael Truong went for a ride on Anthony’s Polaris watercraft. Cu Van Nguyen and Chuong
> Cornell professor Joan Jacobs Brumberg attended a university fundraiser catered by Cipriani. During the event, she feasted on fancy appetizers. About 30 minutes later, she felt intense abdominal pain, which did not go away. Weeks later, her doctors remov