## If you were to receive \$1,166.40 in two years and the appropriate discount rate was 8 percent, the present value would be \$1,166.40/(1.082) = \$1000. Using your own numbers, provide some examples showing the calculation of the present value of a future payment.

ECO 372 Week 2 Discussion Question Worksheet

Reference: Mankiw, N. Gregory (2015). Principles of Macroeconomics (7th ed.). Stamford, CT: Cengage Learning.

Instructions: Minimum of 150 words for each question with in-text citation and reference

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Principles of Macroeconomics, Ch. 13: Saving, Investment, and the Financial System
The economy is moving into a period with higher nominal interest rates. How is this likely to affect bond prices? Based on this, is having an undiversified portfolio 100% in bonds a wise move?

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Principles of Macroeconomics, Ch. 14: The Basic Tools of Finance

Question 1:
Your company is considering a project which would generate revenue in future years. To finance the project you would need to borrow funds today. To determine if the project is worthwhile you compare the present value of the future stream of revenue (or more precisely net profits), to the current cost of the project. In calculating the present value, you use the interest rate that you would need to pay for borrowed money.

Will a higher or lower interest rate make the project more likely to be worthwhile?

If you were a policymaker and wanted to encourage businesses to make investments in new projects, would you want to increase or decrease the interest rate for borrowed funds?

Question 2:

If you put \$1000 into an account paying 8 percent interest (compounded annually), you would have \$1000 x 1.08 = \$1,080 in one year and \$1000 x 1.08 x 1.08 = \$1,000 x 1.082 = \$1,166.40 in two years.

If you were to receive \$1,166.40 in two years and the appropriate discount rate was 8 percent, the present value would be \$1,166.40/(1.082) = \$1000.

Using your own numbers, provide some examples showing the calculation of the present value of a future payment.

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Principles of Macroeconomics, Ch. 15: Unemployment

Question 1:

From roughly 2009 through 2015 the labor force participation rate fell. See the graph at: https://fred.stlouisfed.org/series/CIVPART for the civilian labor force participation rate. In the upper-right of that web page you can search for other data. Type in labor force participation and take a look at a few of the data series and graphs available. Try to find ones that have been ‘seasonally adjusted.’ Share your findings for a particular age group or demographic. You can share your graph by copying the URL for a page.

Question 2:
Why might people in the 20-24 age group have dropped out of, or stayed out of, the labor market between the years of 2009-2015?

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## Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business

Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business.

Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business. Financial and accounting information helps these businesses make educated financial decisions, such as whether or not to continue partnering with a retail supplier. While often smaller businesses, it is equally important for these retail suppliers to use financial and accounting data to make educated decisions, such as the best approach to gaining additional funding.

This week, you’ll assume the role of Senior Accountant with SunsTruck Sunglasses.

For the last six months, SunsTruck has partnered with the discount retail store to run a pop-up sunglasses stand in their stores for a big summer promotion. Due to the high customer purchase rate, the store has requested stock for five additional stores. SunsTruck needs to increase its capacity to meet the additional demand. In order to do so, SunsTruck needs additional money. In this assignment, you will need to help determine which type of financing option is best for your company and train your junior accountants on the accounting cycle and financial statements.

## INSTRUCTIONS

### Step 1: Financing

The junior accounting team has assembled a Financing Report that (a) offers three options for securing the additional funds required to meet the new order; and (b) details the criteria Shaun, the owner of SunsTruck, would like you to consider when choosing one of the options. Based on this report:

• Identify which financing option you think is the best option for SunsTruck to pursue given Shaun’s constraints. Explain the rationale for your decision.

Note: You should complete Steps 2,3 & 4 after reading the material in Week 5.

### Step 2: Accounting Cycle

A junior accountant is working to get everything in order for the new financing and has come to you with a question about what do next in the accounting cycle.

• Read the email the junior accountant sent you and identify the best next step to take in the accounting cycle. Explain your reasoning.

### Step 3: Financial Statements

A potential investor has been identified, but before it is willing to commit, it has requested information about SunsTruck’s current debt from the junior accountants.

• Identify the correct financial statement for your junior accountants that will provide the investor with the information it has requested. Explain to your junior accountants why you are giving them this financial statement and where the debt information is located.

### Step 4: Financial Analysis

If you were the type of financier selected in Step 1, would you invest in SunsTruck? Explain the rationale for your decision.