Organization Structure Impact On Its Performance Commerce Essay

Organization Structure Impact On Its Performance Commerce Essay Different organization structures have different impact on organization performance. Organization structure or organization design is a mean to achieve the organizational objectives through coordination, supervision and allocation of tasks. Three main elements that are organization structure considers are decision making, selection of members and leadership. Companies have to make a tradeoff between different sets of benefits when selecting a particular organization structure. Moreover structure is also important to organization performance because firstly it describes daily routine and operating procedures and secondly it points out that who would be involved in decision making process. Organization structure assists the organization: in maintaining order, resolving issues between different departments and within each department and binds the organization members together. The advantages of strong organization structure include stable hierarchy, smooth flow of communication and a well defined cohesive company message. Organization structure might also entails problems like internal conflicts, high employee turnover, less productivity and delayed decision making. So, its important to identify organization structure issues and to resolve them as they occur to ensure effective and efficient organization performance. Background of Organization Structure For any growing organization its structure is important to guide human resource issues. The history of organization structure dates back to tribal organizations which involved clerical organizational structure and now it has evolved to post industrial structures. Previously organizations histories are ruled by centralization and control which was prevalent after industrial revolution in 19th and early 20th century. After World War II decentralized structures gain sway over organizations. So in post industrial economy smaller organization having decentralized structure more rapidly react to changes as compared to larger organization which have more centralized structures. Importance of the study with respect to the world: The major aim of this study is to find out that how the design of an organization affects its overall performance. This question has been clarified under the context of one company operating in Pakistan. By looking at the problems faced by the company that aroused because of hierarchical issues like communication gap, incentive system, attitude towards change, participation in decision making etc would help other organization identify similar problems and resolve them to improve their performance level. This study would help organizations to consider factors like: is clear channels of communication encourage whistle blowing internally; affect of training, information distortion, team structure and turnover on organization performance; centralized versus decentralized decision making and how employees react when new innovative ideas or strategies are being implemented by an organization. Importance of study with respect to Organization Research Question How organization design impacts the organization performance? Chapter 2 Literature Review DeCanio et al (2000) conducted research on Importance of Organizational Structure for the Adoption of Innovation. The objective of the paper is to study the relationship between organizational structure and its performance. The focus is on economic measures of performance mainly on measures of income inequalities which are result of alternative compensation rules. The model of the research is based on the example of how fitness of the firm gained by the interaction of structure and environmental factors. Now the fitness depends on members adopting the profitable innovation. While the adoption speed and cost depends on firm internal structure and parameters like fixed cost of internal communication, value of innovation and interest rate. The methodology includes representing structures as digraph G. agents representing organization are on vertices and channels of communication are represented of directed edges. The equation formed was à Ã¢â€š ¬ = f(x, G) where à Ã¢â€š ¬ is fitness and x is representing one of the parameters. Then it was assumed that because of changing environmental factors there is a change in x which in turn leads to changing organizational structure. The paper concluded that structure of organization is very important for adoption of innovation and if the impact of organization structure on its performance is not recognized than it would lead to biases in cost estimation and loss of benefits due to change in external circumstances. King (1999) conducted research on The Implications of an Organizations Structure on Whistle blowing. The core theme of this paper is that organizational structure is being affected by whistle blowing. The main objective is to examine that how structure of organization affects the decision of employees in reporting the wrong doings of other employees. Whistle blowing has been defined as the disclosure by organization members (former or current) of illegal, immoral or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action (Near and Miceli, 1985, p. 4).whistle blowing is also defined as when the illegal act of organization are leaked to third parties. So, whistle blowing can be internal or external. Paper discusses two propositions that are P1: Whistleblowers use of internal disclosure channels may be affected by the structure of an organization and P2: Attributes of various organizational structures may influence inter nal disclosure of perceived wrongdoings. It has been mentioned that design of organization that is span of control, number of managerial levels, number of subordinates etc affect the behavior of employees. First paper talks about centralized structure which is very close to bureaucratic structure. Information flows from CEO to the upper management and from the management to the subordinates. The prominent features of this system are high levels of control, standardized procedures, uniform policies, specific titles, ranked positions, a high level of bureaucracy, and highly structured communication. As a result the negative views are suppressed and whistle blowing is not reported internally. The second structure that has been discussed is matrix structure. This design has two divisions that are functional and project. Employees report to projects head and also to function department head. So in matrix structure whistle blowing externally would be unlikely if clear and proper structure s are available. Thirdly horizontal structure in which information flows between and among same organizational level is discussed. Wrongdoings would be reported externally only if communication channels are unclear and ambiguous. Fourthly divisional structure is discussed which is configured based on the product line. Managers are in control of their departments. So wrongdoings are reported internally because of decentralized decision making. Lastly hybrid structure has been discussed. Decision making is decentralized as operational units and as a result wrongdoings would be reported internally a because of open channel of communication between business unit and upper management. So the organizations with clear channels of communication encourages whistle blowing internally and organization with various levels would result in external whistle blowing. Harris and Raviv (2002) conducted research on Organization Design. Three organizational structure are discussed which are functional, divisional and matrix structure. The paper emphasized on the topics that have been ignored in economic literature that are which structure organization adopts and how many managerial levels are involved in it. The main purpose of study is to explore the issues that arise because of selecting a particular design. In order to reap the benefits from interaction of different activities an expert manager is required. Middle managers have the capability to coordinate a pair of interaction but companywide interaction can only be managed by CEO. Company would follow flat structure when cost of hiring middle manager is very high. When salaries of middle managers are low matrix structure would be followed. The methodology includes a hypothetical firm operating four projects named as A, B, C and D. interactions between the two projects have been denoted as AB, CD , AC and BD. Project manager, middle manager and CEO are involved while project manager refers interactions to CEO or middle manager. The paper concludes on the note that new firms have flatter structure with more involvement of CEO and with the passage of time organizational structure will evolve as: highly decentralized structure, matrix structure to decentralized structure or centralized structure followed by decentralized flat structure or matrix structure. Rivkin and Siggelkow (2003) conducted research to stumble on Interdependencies among Elements of Organizational Design. The focus of study was to identify major elements of organizational structure that leads firm to broad search and ultimately to stability. The interdependencies among vertical hierarchy, incentive system and decomposition were studied. The other two contextual factors considered were underlying pattern of interaction among firms decisions and limits imposed on ability of managers to process information. The method used to conduct the research is agent based simulation which involves defining pattern of interaction among decisions. The next step is generation of set of decision problems and lastly firms handle these computer based decision problem. Paper concluded that the reason for Interdependencies arise is because design elements influence how broadly a firm searches its environment to discover good sets of coordinated choices and whether the firm is able to stab ilize around those sets once they are discovered. The stage for organizational configurations is set by Interdependencies among design elements, which also results in the interplay among competing firms. Gehrig (2004) studied Organizational Form and Information Acquisition. The Sah and Stiglitz frame work is used to address issue of research incentive. This frame work states that in order to implement innovative projects bureaucratic systems needs consensus while liberal polyarchial systems implement too many projects. The paper discusses that individual incentives to invest in information generation is affected by organizational forms. The analysis concluded that private incentives of employees to produce information depend on organization form. External research monopolies dominate independent research in terms of incentives of information production, hierarchical or polyarchical research. Joint ventures may dominate research cartels under plausible economic conditions, especially when independent signals provide additional independent information. Dean et al (1992) conducted research on Advanced Manufacturing Technology and Organization Structure: Empowerment or Subordination? The paper talks about advance manufacturing technologies (AMT) which includes computer-aided design (CAD), engineering (CAE), process planning (CAPP), and manufacturing (CAM), manufacturing resource planning (MRP), and computer-integrated manufacturing (CIM) systems. The argument is that AMT is in association with organization structure. The research question is What is the nature of AMTs impact on structure? The methodology adopted is field survey. Factories of the metal-working industries in US were the target population. Upper management like vice presidents of manufacturing and plant managers were addressed by questionnaires and response rate was of 38.3%. Nine functional areas like accounting, purchasing, human resources etc were identified and respondents were requested to indicate extent of computer usage for these areas to measure computerized su pport functions. 11 manufacturing processes were identified to measure computerization of technical core. Similarly integration of support functions and integration between support functions and core functions were studied using 4 point scale. Integration sophistication was also measured. Control variable includes size and environmental factors. Confirmatory factor analysis was performed to check validity and reliability if variables. LISREL analysis was used to test the dependence between organization design and ATM constructs. Technology Marxist view is subject to subordination and it predicts centralization. Idealistic view is linked to empowerment of employees and it predicts decentralization. The research concluded on the note that AMTs integration capacity allows information to be gathered at lower levels and ATMs flexibility allows departments to adapt to decisions of other departments easily that results in lower centralize organization decisions. Formalization is adopted fo r efficient use of technology. So, formalization is described as a mechanism for decentralization. Keck (1997) conducted research on Top Management Team Structure: Differential Effects by Environmental Context. The core argument of paper is that under different environmental factors team structure affects organization performance differently. Organizational performance is financial performance in this study. The sample for this research includes top management teams from 56 cement and 18 minicomputer firms. The firms with four years of financial data were selected in order to analyze the two year ROA growth and lags. The independent variable was the number of team structure. In service offerings innovativeness is increased as a result of functional heterogeneity. More fluctuation in team tenure results in lower level of communication and commitment. So in heterogeneous measures functional heterogeneity and variation in team tenures are used. Fluctuations were measured by number of executives coming in and existing each year. The stratification includes chairman, corporate presiden t, cement or minicomputer president, executive vice presidents and executive committee members, senior vice presidents, and vice presidents. Dependent Variable was the financial performance. The controls included were firm age, firm size and industry performance. For analysis autoregressive-heteroscedastic model was used. The results of analysis indicated that good financial performance under turbulent contexts includes more heterogeneity in tenure, more fluctuations, lower stratification and shorter team tenure. Better performance in stable context can be achieved by lower fluctuations and heterogeneity, higher stratifications and longer team tenure. Radner (1993) conducted research on The Organization of Decentralized Information Processing. The main theme of paper that in decentralizing the activities of information processing hierarchical structures is also remarkably effective. This paper considers decentralization of information-processing for decision-making, and considers three applications that are linear decision rules, project selection and pattern-matching. Model of parallel processing has been used to describe the decentralized computation of organizational decision. Paper concluded that Organizations make many different decisions. In principle, different trees might be used to compute different decisions, or different classes of decisions. Even if there is only one tree of authority, many-or most-of the information flows do not follow it. Podolny and Page (1998) conducted research on Network Forms of Organization. Paper discuses increase in sociological interest in network forms of organization. Sociologists argued that network forms of organization represent a unique alternative possessing its own logic and it could not be considered hybrids of markets or hierarchies. Second, they argued that the network form of organization have significant efficiency advantages that are not possessed by pure markets or pure hierarchies. Podolny and Page defines a network form of organization as any collection of actors (N> 2) that pursue repeated, enduring exchange relations with one another and, at the same time, lack a legitimate organizational authority to arbitrate and resolve disputes that may arise during the exchange. Paper emphasizes on the fact that the network form does not represents one of two forms rather it represent one of three alternative forms of governance. A pair wise comparison was made in past like between aut onomy of the network form and hierarchy. The system which presents the greater advantage can be assessed by considering strengths and weaknesses of three forms simultaneously. Hsu and Hannan (2005) conducted research work on Identities, Genres, and Organizational Forms. The paper discusses organizational ecology and argues that many new organizations have emerged and also many have undergone structural change recently. OEs strategy examines full histories and collects history data from population, examines type of entry and exists and it uses event history method to examine the impact of population, environment and characteristics of organization on hazards of entry and exist. Social rules that organization are expected to follow are called organizational identities. Specific kinds of collective identities represent organizational forms. Two basic issues are addressed when measuring the organizational identities: (1) whose point of view should be considered when measuring identity? (2) How can the social embodied in this point of view be measured? The study concluded that organizational forms are described in term of social identities. Forms or sociologica l real categories are defined as for which membership matters. To invite consideration of systematic ways in which in order to specify and differentiate forms in terms of identities properties such as simplicity, specificity, sharpness, resonance, and authenticity and their potential impact on key organizational dynamics have been considered. Mintzberg (1980) conducted research on Structure in 5s: A Synthesis of the Research on Organization Design. The main purpose of paper is that organizational structuring can better be understood through configurations. Organization consists of five parts that are operating core, strategic apex, middle line, techno structure and support staff. Coordination of organizational tasks is effected by direct supervision, standardization of work processes, standardization of work output, standardization of skills and mutual adjustment. Five different types of decentralization mentioned in paper are vertical and horizontal centralization, limited horizontal decentralization, limited vertical decentralization, horizontal and vertical decentralization and selective decentralization. In simple structure there is no techno structure, few support staffers, a loose division of labor, a small middle line hierarchy, communication flow and decision making is informal. The classic example of this structu re is entrepreneurial firm. Machine bureaucracy is highly specialized, routine operating tasks, much formalized procedures and large-sized units in the operating core, little use made of training and of the liaison devices, relatively centralized power for decision making with some use of action planning systems, and an elaborate administrative structure with a sharp distinction between line and staff. Professional Bureaucracy is found in school systems, social work agencies, accounting firms, and craft manufacturing firms. They hire highly trained specialists in its operating core, and then give them considerable autonomy in their work. The techno structure is minimal and support staff is highly elaborated. The divisionalized form is described as a market-based one having large number of divisions which reports to the one central headquarters. The fifth structure is Adhocracy. This configuration consists of organic structure with little formalization of behavior; extensive horizont al job specialization based on formal training; a tendency to group the professional specialists in functional units for housekeeping purposes but to deploy them in small market-based teams to do their project work. These five configurations represent typology that would help to determine how structures emerge, how and why they change over time, why certain pathologies plague organizational. Yoo et al (2006) conducted research on From Organization Design to Organization Designing. The paper is based on the argument that managers should move beyond selecting an organization and should create new organizational forms. Four projects of Gehrys Partners over the period of past 15 years have been selected. These projects were build with unique challenges and needs in different environment. 83 interviews were conducted with architects, designers, and engineers working at Gehry Partners, contractors and subcontractors, a surveyor, structural engineering consultants, owner representatives, a building fire inspector, a city building code inspector, lawyers involved in contract negotiations, and several construction crews who worked at the sites. Similarities and differences were identified to study Gehrys Project gestalt of organizational designing. The design embraces three inter dependent elements that are architectural vision, use of representational technologies, and a collabo rative network for design and construction. The paper concluded that building a successful project results in organization design. Designing products and designing organization should flow from the common set of capabilities called as design gestalt (virtual capability that combines ideas, values, resources, tools, and people into ensembles that can create and project remark able artifacts). Westerman et al (2006) conducted research on Organization Design and Effectiveness over the Innovation Life Cycle. The Paper examines that in different eras of the innovations life cycle, how firms adapt to differing strategic contingencies. The research questions are: How do firms organize to adopt innovations at different eras of the innovation life cycle? How can managers address conditions of misfit? How do organization designs change over time? The paired case study has been selected with theoretical sampling to choose pairs of industry leaders who use different designs and competed head to head. For example for retail pharmacy, we compared the number of unique visitors to the company websites each month. The paper concluded on the note that firms use one of three adaptation modes that are separated early, integrated early and wait then transform. None of these adaptation modes are fully autonomous nor fully integrated, and they change over time. Each mode optimizes for one cont ingency while sub optimally attempting to address the other. Ouchi (1997) conducted research on The Relationship between Organizational Structure and Organizational Control. The paper is based on the argument that organization control and structure are not clearly distinguished in organization literature. Control and structure are two different things where control means evaluation process based on monitoring of behavior or output. The research methodology includes the data collected from 78 full-line, non-discount, and retail department store companies located in the Northeastern one-fourth of the United States. The study concluded that structure is related to control. Large organizations have many managerial levels and departments and increased supervisory efficiency of managers. Size is related to danger of control loss which in turn brings measures which minimize the control loss. Carley and Lin (1997) conducted research on A Theoretical Study of Organizational Performance under Information Distortion. The addresses the question that how should organizations of intelligent agents be designed so that they exhibit high performance despite information distortion? For this purpose stylized radar detection task has been used. The interrelationship between information distortion, organizational design and task environment has been considered. The results of study showed that training improves performance, the greater the number of information distortions the lower the performance, turnover degrades performance, misinformation leads to lower performance than communication breakdowns, and teams outperform hierarchies. Teams outperform hierarchies when the task environment is unbiased decomposable. Before settling on a particular organizational design or expending effort to minimize information distortions organization should first consider what task environment it is likely to face. After doing the literature review, it is concluded that different organizational forms have significant impact on organization performance. Different methodologies have been used in research paper to prove the assumptions made. Organization design is strongly linked with information acquisition, innovation, whistle blowing, financial performance, information distortion, organization control and empowerment or subordination of employees. Chapter 3 Methodology Research Type Qualitative and quantitative both research tools would be used to conduct this research. Qualitative research would be used to explore the problem within the organization and to gather rich information on hierarchical issues being faced through in-depth interviews with upper management as well as with lower management. Quantitative research would be used to find out the relationship between the dependent variable and the independent variable. Data Type and Research Period The data for this study would be mostly primary in nature. It would be gathered through questionnaires and face to face interviews. In order to measure impact on performance secondary resources would be used like official documents and financial statements for last four years that is from 2009 to 2012. Time frame for the primary data is from November 2012 to April 2013. The sample size for collection data is 100 and questionnaires would be distributed to the employees of different branches of the same bank. Sources of Data In order to gather data internal sources within the organization would be used. These sources include accounting resources (financial statement), internals experts (head of departments), lower level employees and operational reports from HR department. Population, Working population and Planned sample The population is all organizations working in Pakistan. Working Population. Planned sample for the research is 100 employees from different branches of bank in Lahore. Research Hypothesis Techniques After gathering the data from primary and secondary resources the regression analysis would be conducted. Regression will be conducted to check the relationship between the variable over the years. Data analysis The SPSS software that stands for Statistical Product and Service Solutions would be used to analyze the data. This software is used for statistical analysis and includes programs like ANOVA, linear regression, t-test and correlation. Regression will be conducted to check the relationship between the variable over the years. Graphs and tables would be used to represent the results. Data interpretation The results generated from the statistical software would be compiled and graphs, tables and regression results would be used to interpret the results. Theoretical Framework

Business Math

Chapter 5 Interest Rates 5-1. Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. Six months. b. One year. c. One month. a. Since 6 months is [pic] of 2 years, using our rule [pic] So the equivalent 6 month rate is 4. 66%. b. Since one year is half of 2 years [pic] So the equivalent 1 year rate is 9. 54%. c. Since one month is [pic] of 2 years, using our rule [pic] So the equivalent 1 month rate is 0. 63%. 5-2. Which do you prefer: a bank account that pays 5% per year (EAR) for three years or a. An account that pays 2[pic] every six months for three years? b. An account that pays 7[pic] every 18 months for three years? c. An account that pays [pic] per month for three years? If you deposit $1 into a bank account that pays 5% per year for 3 years you will have [pic] after 3 years. a. If the account pays [pic] per 6 months then you will have [pic] after 3 years, so you prefer [ pic] every 6 months. b.If the account pays [pic] per 18 months then you will have [pic] after 3 years, so you prefer 5% per year. c. If the account pays [pic] per month then you will have [pic] after 3 years, so you prefer [pic] every month. 5-3. Many academic institutions offer a sabbatical policy. Every seven years a professor is given a year free of teaching and other administrative responsibilities at full pay. For a professor earning $70,000 per year who works for a total of 42 years, what is the present value of the amount she will earn while on sabbatical if the interest rate is 6% (EAR)? Timeline: 0 |7 |14 | | | |42 | | | | | | | | | |0 |1 |2 | | | |8 | | | | | | | | | |0 |1 |2 | | | |304 | | | | | | | |48 |0. 75 % |20,092. 9 |–500 |0 | Thus, your remaining balance is $20,092. 39. If you prepay an extra $100 today, your will lower your remaining balance to $20,092. 39 – 100 = $19,992. 39. Though your balance is reduced, your required monthly payment does not ch ange. Instead, you will pay off the loan faster; that is, it will reduce the payments you need to make at the very end of the loan. How much smaller will the final payment be? With the extra payment, the timeline changes: That is, we will pay off by paying $500 per month for 47 months, and some smaller amount, $500 – X, in the last month.To solve for X, recall that the PV of the remaining cash flows equals the outstanding balance when the loan interest rate is used as the discount rate: [pic] Solving for X gives [pic] So the final payment will be lower by $143. 14. You can also use the annuity spreadsheet to determine this solution. If you prepay $100 today, and make payments of $500 for 48 months, then your final balance at the end will be a credit of $143. 14: |N |I |PV |PMT |FV | |48 |0. 75 % |19,992. 9 |-500 |143. 14 | (2) The extra payment effectively lets us exchange $100 today for $143. 14 in four years. We claimed that the return on this investment should be the loan interest rate. Let’s see if this is the case: [pic], so it is. Thus, you earn a 9% APR (the rate on the loan). 5-19. Consider again the setting of Problem 18. Now that you realize your best investment is to prepay your student loan, you decide to prepay as much as you can each month. Looking at your budget, you can afford to pay an extra $250 per month in addition to your required monthly payments of $500, r $750 in total each month. How long will it take you to pay off the loan? The timeline in this case is: and we want to determine the number of monthly payments N that we will need to make. That is, we need to determine what length annuity with a monthly payment of $750 has the same present value as the loan balance, using the loan interest rate as the discount rate. As we did in Chapter 4, we set the outstanding balance equal to the present value of the loan payments and solve for N. [pic] We can also use the annuity spreadsheet to solve for N. N |I |PV |PMT |FV | |30. 02 |0. 75 % |20,092. 39 |–750 |0 | So, by prepaying the loan, we will pay off the loan in about 30 months or 2 ? years, rather than the four years originally scheduled. Because N of 30. 02 is larger than 30, we could either increase the 30th payment by a small amount or make a very small 31st payment. We can use the annuity spreadsheet to determine the remaining balance after 30 payments. N |I |PV |PMT |FV | |30 |0. 75 % |20,092. 39 |–750 |–13. 86 | If we make a final payment of $750. 00 + $13. 86 = $763. 86, the loan will be paid off in 30 months. 5-20. Oppenheimer Bank is offering a 30-year mortgage with an APR of 5. 25%. With this mortgage your monthly payments would be $2000 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making he monthly payment of $2000 every month, you can make half the payment every two weeks (so that you will make 52 ? 2 = 26 payments per year). With this plan, how long will it take to pay off the mortga ge of $150,000 if the EAR of the loan is unchanged? If we make [pic] every 2 weeks the timeline is as follows. Timeline: |0 |1 |2 |3 | | | | | | | | | | | | Using the formula for the loan payment, [pic] Next we write out the cash flows with the extra payment. Timeline #2: 0 |1 | |6|7| |18 | | | | | | | | | To determine the outstanding balance we discount at the original rate, i. e. , [pic] [pic] Next we calculate the loan payment on the new mortgage. Timeline #2: |0 |1 |2 | | | |360 | | | | | | | | | The discount rate on the new loan is the new loan rate: [pic] Using the formula for the loan payment: [pic] b. pic] c. [pic] (You can use trial and error or the annuity calculator to solve for N. ) d. [pic] (Note: results may differ slightly due to rounding. ) 5-24. You have credit card debt of $25,000 that has an APR (monthly compounding) of 15%. Each month you pay the minimum monthly payment only. You are required to pay only the outstanding interest. You have received an offer in the mail for an otherwise identical credit card with an APR of 12%. After considering all your alternatives, you decide to switch cards, roll over the outstanding balance on the old card into the new card, and borrow additional money as well.How much can you borrow today on the new card without changing the minimum monthly payment you will be required to pay? The discount rate on the original card is: [pic] Assuming that your current monthly payment is the interest that accrues, it equals: [pic] Timeline: |0 |1 |2 | | | | | | | | | | | | | | | | | | | |312. 50 |312. 50 | |This is a perpetuity. So the amount you can borrow at the new interest rate is this cash flow discounted at the new discount rate. The new discount rate is [pic] So,[pic] So by switching credit cards you are able to spend an extra [pic] You do not have to pay taxes on this amount of new borrowing, so this is your after-tax benefit of switching cards. 5-25. In 1975, interest rates were 7. 85% and the rate of inflation was 12. 3% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year? pic] The purchasing power of your savings declined by 3. 96% over the year. 5-26. If the rate of inflation is 5%, what nominal interest rate is necessary for you to earn a 3% real interest rate on your investment? [pic] implies [pic]. Therefore, a nominal rate of 8. 15% is required. 5-27. Can the nominal interest rate available to an investor be significantly negative? (Hint: Consider the interest rate earned from saving cash â€Å"under the mattress. †) Can the real interest rate be negative? Explain. By holding cash, an investor earns a nominal interest rate of 0%.Since an investor can always earn at least 0%, the nominal interest rate cannot be negative. The real interest rate can be negative, however. It is negative whenever the rate of inflation exceeds the nominal interest rate. 5-28. Consider a project that requires an ini tial investment of $100,000 and will produce a single cash flow of $150,000 in five years. a. What is the NPV of this project if the five-year interest rate is 5% (EAR)? b. What is the NPV of this project if the five-year interest rate is 10% (EAR)? c. What is the highest five-year interest rate such that this project is still profitable? . NPV = –100,000 + 150,000 / 1. 055 = $17,529. b. NPV = –100,000 + 150,000 / 1. 105 = –$6862. c. The answer is the IRR of the investment: IRR = (150,000 / 100,000)1/5 – 1 = 8. 45%. 5-29. Suppose the term structure of risk-free interest rates is as shown below: [pic] a. Calculate the present value of an investment that pays $1000 in two years and $2000 in five years for certain. b. Calculate the present value of receiving $500 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which ou do know the rates. (For example , the rate in year 4 would be the average of the rate in year 3 and year 5. ) c. Calculate the present value of receiving $2300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint : Use a spreadsheet. ) a. Timeline: |0 |1 |2 |3 |4 |5 | | | | | | | | | | | | | | | |Since the opportunity cost of capital is different for investments of different maturities, we must use the cost of capital associated with each cash flow as the discount rate for that cash flow. Unfortunately, we do not have a rate for a 4-year cash flow, so we linearly interpolate. [pic] [pic] c. Timeline: 0 |1 |2 |3 | | | |20 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |2,300 |2,300 |2,300 | | | |2,300 | |Since the opportunity cot of capital is different for investments of different maturities, we must use the cost of capital associated with each cash flow as the discount rate for that cash flow.Unfortunately, we do not have a rate for a nu mber of years, so we linearly interpolate. [pic] [pic] [pic] [pic] 5-30. Using the term structure in Problem 29, what is the present value of an investment that pays $100 at the end of each of years 1, 2, and 3? If you wanted to value this investment correctly using the annuity formula, which discount rate should you use? PV = 100 / 1. 0199 + 100 / 1. 02412 + 100 / 1. 02743 =$285. 61. To determine the single discount rate that would compute the value correctly, we solve the following for r: PV = 285. 1 = 100/(1 + r) + 100 / (1 + r)2 + 100/(1 + r)3 = $285. 61. This is just an IRR calculation. Using trial and error or the annuity calculator, r = 2. 50%. Note that this rate is between the 1, 2, and 3-yr rates given. 5-31. What is the shape of the yield curve given the term structure in Problem 29? What expectations are investors likely to have about future interest rates? The yield curve is increasing. This is often a sign that investors expect interest rates to rise in the future. 5-3 2. Suppose the current one-year interest rate is 6%.One year from now, you believe the economy will start to slow and the one-year interest rate will fall to 5%. In two years, you expect the economy to be in the midst of a recession, causing the Federal Reserve to cut interest rates drastically and the one-year interest rate to fall to 2%. The one-year interest rate will then rise to 3% the following year, and continue to rise by 1% per year until it returns to 6%, where it will remain from then on. a. If you were certain regarding these future interest rate changes, what two-year interest rate would be consistent with these expectations? . What current term structure of interest rates, for terms of 1 to 10 years, would be consistent with these expectations? c. Plot the yield curve in this case. How does the one-year interest rate compare to the 10-year interest rate? a. The one-year interest rate is 6%. If rates fall next year to 5%, then if you reinvest at this rate over two years you would earn (1. 06)(1. 05) = 1. 113 per dollar invested. This amount corresponds to an EAR of (1. 113)1/2 – 1 = 5. 50% per year for two years. Thus, the two-year rate that is consistent with these expectations is 5. 0%. b. We can apply the same logic for future years: c. We can plot the yield curve using the EARs in (b); note that the 10-year rate is below the 1-year rate (yield curve is inverted). 5-33. Figure 5. 4 shows that Wal-Mart’s five-year borrowing rate is 3. 1% and GE Capital’s is 10%. Which would you prefer? $500 from Wal-Mart paid today or a promise that the firm will pay you $700 in five years? Which would you choose if GE Capital offered you the same alternatives? We can use the interest rates each company must pay on a 5-year loan as the discount rate.PV for GE Capital = 700 / 1. 105 = $434. 64 < $500 today, so take the money now. PV for Wal-Mart = 700 / 1. 0315 = $600. 90 > $500 today, so take the promise. 5-34. Your best taxable investment o pportunity has an EAR of 4%. You best tax-free investment opportunity has an EAR of 3%. If your tax rate is 30%, which opportunity provides the higher after-tax interest rate? After-tax rate = 4%(1 – . 30) = 2. 8%, which is less than your tax-free investment with pays 3%. 5-35. Your uncle Fred just purchased a new boat.He brags to you about the low 7% interest rate (APR, monthly compounding) he obtained from the dealer. The rate is even lower than the rate he could have obtained on his home equity loan (8% APR, monthly compounding). If his tax rate is 25% and the interest on the home equity loan is tax deductible, which loan is truly cheaper? After-tax cost of home equity loan is 8%(1 – . 25) = 6%, which is cheaper than the dealer’s loan (for which interest is not tax-deductible). Thus, the home equity loan is cheaper. (Note that this could also be done in terms of EARs. ) 5-36.You are enrolling in an MBA program. To pay your tuition, you can either take out a s tandard student loan (so the interest payments are not tax deductible) with an EAR of 5[pic] or you can use a tax-deductible home equity loan with an APR (monthly) of 6%. You anticipate being in a very low tax bracket, so your tax rate will be only 15%. Which loan should you use? Using the formula to convert an APR to an EAR: [pic] So the home equity loan has an EAR of 6. 168%. Now since the rate on a tax deductible loan is a before-tax rate, we must convert this to an after-tax rate to compare it. [pic]Since the student loan has a larger after tax rate, you are better off using the home equity loan. 5-37. Your best friend consults you for investment advice. You learn that his tax rate is 35%, and he has the following current investments and debts:  ¦ A car loan with an outstanding balance of $5000 and a 4. 8% APR (monthly compounding)  ¦ Credit cards with an outstanding balance of $10,000 and a 14. 9% APR (monthly compounding)  ¦ A regular savings account with a $30,000 balan ce, paying a 5. 50% EAR  ¦ A money market savings account with a $100,000 balance, paying a 5. 25% APR (daily compounding) A tax-deductible home equity loan with an outstanding balance of $25,000 and a 5. 0% APR (monthly compounding) a. Which savings account pays a higher after-tax interest rate? b. Should your friend use his savings to pay off any of his outstanding debts? Explain. a. The regular savings account pays 5. 5% EAR, or 5. 5%(1 – . 35) = 3. 575% after tax. The money-market account pays (1 + 5. 25%/365)365 – 1 = 5. 39% or 5. 39%(1 – . 35) = 3. 50% after tax. Therefore, the regular savings account pays a higher rate. b. Your friend should pay off the credit card loans and the car loan, since they have after-tax costs of 14. % APR and 4. 8% APR respectively, which exceed the rate earned on savings. The home equity loan should not be repaid, as its EAR = (1 + 5%/12)12 – 1 = 5. 12%, for an after-tax rate of only 5. 125(1 – . 35) = 3. 33%, which is below the rate earned on savings. 5-38. Suppose you have outstanding debt with an 8% interest rate that can be repaid anytime, and the interest rate on U. S. Treasuries is only 5%. You plan to repay your debt using any cash that you don’t invest elsewhere. Until your debt is repaid, what cost of capital should you use when evaluating a new risk-free investment opportunity? Why?The appropriate cost of capital for a new risk-free investment is 8%, since you could earn 8% without risk by paying off your existing loan and avoiding interest charges. 5-39. In the summer of 2008, at Heathrow Airport in London, Bestofthebest (BB), a private company, offered a lottery to win a Ferrari or 90,000 British pounds, equivalent at the time to about $180,000. Both the Ferrari and the money, in 100 pound notes, were on display. If the U. K. interest rate was 5% per year, and the dollar interest rate was 2% per year (EARs), how much did it cost the company in dollars each month to keep the cash on display?That is, what was the opportunity cost of keeping it on display rather than in a bank account? (Ignore taxes. ) Because the prize is in pounds, we should use the pound interest rate (comparable risk). (1. 05)(1/12) – 1 = . 4074%. 0. 4074% x 90k = 366. 7 pounds per month, or $733 per month at the current exchange rate. 5-40. You firm is considering the purchase of a new office phone system. You can either pay $32,000 now, or $1000 per month for 36 months. a. Suppose your firm currently borrows at a rate of 6% per year (APR with monthly compounding).Which payment plan is more attractive? b. Suppose your firm currently borrows at a rate of 18% per year (APR with monthly compounding). Which payment plan would be more attractive in this case? a. The payments are as risky as the firm’s other debt. So opportunity cost = debt rate. PV(36 month annuity of 1000 at 6%/12 per month) = $32,871. So pay cash. b. PV(annuity at 18%/12 per mo) = $27,661. So pay over time. ———————– 47 –500 0 2 –500 1 –500 48 –500 47 –500 0 19,992. 39 2 –500 1 –500 48 –(500 – X) N -750 0 20,092. 39 2 -750 1 -750 [pic]

The Symbolism of Eating and Food in Bartleby, The...

â€Å"Bartleby, The Scrivener† is a memorable story, by Herman Melville, that is able to keep its readers captivated from beginning to end. How does the author successfully grab the attention of his readers? The author utilized his masterful command of the English language to convey the characters, setting, and plot effectively; and in the midst of all the detailed descriptions Melville have used food and the action of eating as powerful symbols. In the story three of the characters have names that are associated with food, and the main character of study, Bartleby, eventually dies of starvation by choice. Given the setting of the story was in the onset of the second industrial revolution, the coming of the big corporations where Wall†¦show more content†¦They were striped of the regular human emotions and were created merely as puppets to assist the delivery of other symbolic means. The names of Turkey, Ginger Nut and Nippers were symbolic nicknames the characte rs had of each other, they fit their physical and personality characteristics. On a deeper level the lawyer may also hinted that they were insignificant figures, the lawyer never even used their real names and their real names were never introduced, they were just a few of many scriveners in the lawyer’s memory. Turkey is a short and overweight English man around 60 years old. He is named turkey because when he is angry his neck would turn red almost resembles a turkey. His mood changes as sure as time would pass day after day. He is very effective in the morning and becomes less and less so in the afternoon. He would start getting easily distracted and frustrated maybe due to intoxication. Turkey had a troubled state of finance can be perceived as someone of being caged by the repetitive work yet has not been able to improve his living standard. Turkey wears clothes that â€Å"look oily and smell of eating houses.† (Melville 125) Even when the lawyer tried to give him an used, but nice looking coat, Turkey’s response was described as â€Å"precisely as a rash, restive horse is said to feel his oats, so Turkey felt his coat, restive horse is said to feel his oats, so Turkey felt his coat.† (Melville

Introduction to the Custom of Sati

Sati or suttee is the ancient Indian and Nepalese practice of burning a widow on her husbands funeral pyre or burying her alive in his grave. This practice is associated with Hindu traditions.  The name is taken from the goddess Sati, wife of Shiva, who burned herself to protest her fathers ill-treatment of her husband.  The term sati can also apply to the widow who commits the act. The word sati comes from the feminine present participle of the Sanskrit word  asti, meaning she is true/pure.  While it has been most common in India and Nepal, examples have occurred in other traditions from as far afield as Russia, Vietnam, and Fiji. Pronunciation: suh-TEE or SUHT-ee Alternate Spellings: suttee Seen as a Proper Finale to a Marriage According to custom, Hindu sati was supposed to be voluntary, and often it was seen as the proper finale to a marriage. It was considered to be the signature act of a dutiful wife, who would want to follow her husband into the afterlife. However, many accounts exist of women who were forced to go through with the rite. They may have been drugged, thrown into the fire, or tied up before being placed on the pyre or into the grave. In addition, the strong societal pressure was exerted on women to accept sati, particularly if they had no surviving children to support them. A widow had no social standing in traditional society and was considered a drag on resources. It was almost unheard-of for a woman to remarry after her husbands death, so even very young widows were expected to kill themselves. History of Sati Sati first appears in the historical record during the reign of the Gupta Empire, c. 320 to 550 CE.  Thus, it may be a relatively recent innovation in the extremely long history of Hinduism. During the Gupta period, incidents of sati began to be recorded with inscribed memorial stones, first in Nepal in 464 CE, and then in Madhya Pradesh from 510 CE. The practice spread to Rajasthan, where it has happened most frequently over the centuries. Initially, sati seems to have been limited to royal and noble families from the Kshatriya caste (warriors and princes). Gradually, however, it percolated down into the lower castes. Some areas such as Kashmir became particularly known for the prevalence of sati among people of all classes and stations in life. It seems to have really taken off between the 1200s and 1600s CE. As the Indian Ocean trade routes brought Hinduism to Southeast Asia, the practice of sati also moved into new lands during the 1200s to 1400s. An Italian missionary and traveler recorded that widows in the Champa kingdom of what is now Vietnam practiced sati in the early 1300s. Other medieval travelers found the custom in Cambodia, Burma, the Philippines, and parts of what is now Indonesia, particularly on the islands of Bali, Java, and Sumatra. In Sri Lanka, interestingly, sati was practiced only by queens; ordinary women were not expected to join their husbands in death. The Banning of Sati Under the rule of the Muslim Mughal emperors, sati was banned more than once. Akbar the Great first outlawed the practice around the year 1500; Aurangzeb tried to end it again in 1663, after a trip to Kashmir where he witnessed it. During the European  colonial period, Britain, France, and the Portuguese all tried to stamp out the practice of sati. Portugal outlawed it in Goa as early as 1515. The British East India Company imposed a ban on sati in the city of Calcutta only in 1798. To prevent unrest, at that time the BEIC did not allow Christian missionaries to work within its territories in India.  However, the issue of sati became a rallying point for British Christians, who pushed legislation through the House of Commons in 1813 to allow missionary work in India specifically to end practices like sati.   By 1850, British colonial attitudes against sati had hardened. Officials like Sir Charles Napier threatened to hang for murder any Hindu priest who advocated or presided over a widow-burning. British officials put intense pressure on the rulers of the princely states to outlaw sati, as well. In 1861, Queen Victoria issued a proclamation banning sati throughout her domain in India. Nepal officially banned it in 1920. Prevention of Sati Act Today, Indias  Prevention of Sati Act  (1987) makes it illegal to coerce or encourage anyone to commit sati. Forcing someone to commit sati can be punished by death. Nonetheless, a small number of widows still choose to join their husbands in death; at least four instances have been recorded between the year 2000 and 2015. Examples In 1987, a Rajput man was arrested after the sati death of his daughter-in-law, Roop Kunwar, who was just 18 years old.