At the end of lecture the other day the professor added, with emphasis, that “Chapter 16 is very important to the rest of the course“. The topic of the chapter is Remedies for Breach of Traditional and E-Contracts. Performance and Breach The chapter contains starts of with a discussion of performance and breach. It was interesting that a distinction was made between ‘complete’ and ‘substantial’ performance. In other words, if one party to a contract completes most of the terms, the contract may be substantially performed. This would give rise to a minor breach. In other words, the court or jury are likely to consider partial remedies that related to the minor breach, rather than treat it as a full breach. The spectrum of possibilities deviates from the black and white view often given to contracts. Damages There are various ways to look at damages. This range from very little to enormous and serve various purposes. A summary list of types of damages should include Monetary damages Compensatory damages Consequential (or special) damages Nominal damages (typically $1) Liquidated damages (or penalty) Mitigation of damages was new to me. It makes perfect sense, but I didn’t know it had been articulated in the law. Mitigation of damages suggests that the person not in breach of the contract has a responsibility to reduce the overall damages if possible. For example, if I have a work contract with a term of three years and I’m laid off after one year, then I’m entitled to damages of pay equal to what I would have made during the remaining two years unless I find other employment equivalent to what I lost. Under mitigation of damages, I’m required to look for work to reduce the overall damages to the breaching party (my previous employer). If I don’t look for work, they may be able to get a reduction to the overall damages at court. Remedies and Torts The remainder of the chapter discusses remedies and torts related to contract law. Among remedies are garnishment of wages, compelling to perform, etc. Torts include intentional interference, covenants of good faith, etc. These play out much like you might...

A review of the monthly rates of return for Google and Microsoft for two successive five year periods allow me to calculate the beta, ß, for each period. Recall that ß is calculated under the Capital Asset Pricing Model (CAPM) as follows:   Getting the data It was easy to download the data on yahoo finance. Once there, I was able to set the time period of interest and frequency as shown here (click to enlarge).   Once you have the set of data that interests you, scroll down to the bottom and download the data, as shown here.   Note that in order to calculate the ß in Excel, you need the market comparison data as well. In order to get that I change my search to ^DJI with the same period and frequency as shown above. However, I noticed that they don’t provide a download option for that data. Since the data is shown in tabular format, you can copy and paste it directly in to Excel. Don’t forget to click Next until you have grabbed all the necessary pages. Google data only went back to 2004, so the analysis for the second five year period for Google has fewer data points than the same analysis for Microsoft. Setup in Excel I setup a workbook with three sheets, one for MSFT, one for GOOG and the last for DJI, or market data. Since I wanted to get two success five year periods, I added an empty line at the five year mark. I hid all but the date, closing price and adjusted closing price on each sheet. Adjusted closing price In order to get the most accurate historical view of return rate, I used the adjusted closing price to calculate my monthly return. Formatting I then display the market data side by side with the stock specific return rate on each page. Excel conditional formatting made it easy to show movement graphically. That graphical view is a good sanity check while reviewing the formulas. Scatter plot Finally I inserted a scatter plot and used Excel’s built in linear mapping to show the ß line and calculate R-squared. Note that I also calculated ß using the SLOPE formula...

Patent and copyright law are essential to a free market system. They were important enough that specific powers to enforce protections for inventions are built into the constitution of the United States. It could be that some of the prolific inventors of the time, such as Benjamin Franklin, pushed for such measures, and the sentiment must have been shared. Below is a presentation that shows a contemporary view of patent and copyright law and litigation. The presentation discusses two cases involving companies such as Samsung, Apple, Barnes & Noble and Amazon, among others. In the case of Amazon and Barnes & Noble, the matter was settle out of court. In the case of Samsung vs. Apple, the number of cases currently being prosecuted is growing. Questions One question to ask is at what point does litigation diminish the returns that are anticipated from an intellectual property system? Another might be at what point are the arguments beyond the expertise and ability of a judge or jury to reasonably determine a winner in a patent infringement case? These questions will increasingly weigh on decisions about when and how to litigate patents in courts of...

Return on Assets (ROA) and Return on Equity (ROE) are two standard measures used to evaluate the health and future prospects of a company. This type of analysis was introduced in the 1920s, being employed by the DuPont corporation. It algebraically splits ROE into three different measures Profit margin Turnover Leverage This is accomplished by starting with the ratio of net income to equity Then multiplying by assets and sales, like this Some shuffling and we can get the three items listed above   Variation Some authors prefer to normalize out taxes and interest in the ROA and ROE equations, so that in place of net income they instead use after-tax interest plus net income.   DuPont Analysis for Google Assets 96,692.00 Equity 75,473.00 Net income 11,193.00 Interest Expense 85.00 Tax rate 16.58% After-tax interest 70.91 After-tax interest + Net Income 11,263.91 ROA 11.6% ROE 14.9% DuPont Sales 53,499 profit margin 21.1% turnover 55.3% leverage 128.1% DuPont Analysis for Microsoft Assets 134,105.00 Equity 76,688.00 Net income 16,406.00 Interest Expense 405.00 Tax rate 22.85% After-tax interest 312.46 After-tax interest + Net Income 16,718.46 ROA 12.5% ROE 21.8% DuPont Sales 76,012.00 profit margin 22.0% turnover 56.7% leverage 174.9% Observations Profit margin and turnover are roughly the same for both companies. However, Microsofts total Assets are greater than Google’s by about 40%. That significantly increases Microsoft’s leverage position. The higher ratio for leverage may shed some light on my previous analysis showing that Microsoft has a higher bond rating and a higher debt load to...

The second lecture for Business Law was interesting. It felt more like a round table discussion and was infused with a lot of back and forth, including both the lecturer and the students. It Depends One interesting comment the teacher made about half way through with respect to law was “It Depends”. In other words, is someone guilty or not? It depends. Is someone liable? It depends. On what does it depend? A host of things, including the context, the timing, the judge or jury. Perhaps most interesting was the discussion of a Reasonable Person. So much of law comes back to what a reasonable person would or would not do. However, there isn’t a definition of a reasonable person. So law is left to the spectrum of human experience and emotion to weigh in on guilt or innocence. Lord Goddard C.J.R. in Regina v. McCarthy, 2 Q.B. 105 (1954) (copied from Cheesman) stated: No court has ever given, nor do we think ever can give, a definition of what constitutes a reasonable or an average man. Certainly there are mechanisms to account for aberrations, such as the option for a judge to recuse himself. Jury selection plays a part. In those few cases where someone feels there has been a miscarriage of justice, the appeals process is available to seek remedy. So, then next time you get caught up in the letter of the law and think you have a sure thing figured out, just remember, it...

According to the morningstar website, both Microsoft and Google have high bond ratings, with Microsoft slightly higher. Microsoft Google Morningstar Credit Rating AAA AA Amt Outstanding $16.9 Bil $3.0 Bil Debt/Assets 10.58% 5.31% Based on the ratings, the bond market appears to favor more experienced borrowers, since from a debt load perspective, Google has better standing. Google’s entire bond issue is encompassed in just three bonds with the longest maturation in 2021. It’s also interesting that all three mature on May 19. Duration Duration is calculated the weighted average of the present values of all future cash flows. It can be represented by the following equation (ref), where PV is the present value.   Calculations like this are easily done in Excel. For this exercise I chose bonds that mature in 2016 and payout semi-annually for both Google and Microsoft. Microsoft bond duration Microsoft Coupn 2.500% Par $1,000.00 Maturity 2/8/2016 Frequency semi-annual Discount rate 2.38% 1 2 3 4 5 6 Total 8/8/2013 2/8/2014 8/8/2014 2/8/2015 8/8/2015 2/8/2016 Payment $25.00 $25.00 $25.00 $25.00 $25.00 $1,025.00 PV(Ct) $24.42 $23.85 $23.30 $22.76 $22.23 $890.09 $1,006.64 PV(Ct)/PV 0.0243 0.0237 0.0231 0.0226 0.0221 0.8842 Duration 0.0121 0.0237 0.0347 0.0452 0.0552 2.6527 2.8236 Google bond duration Google Coupon 2.125% Par $1,000.00 Maturity 5/19/2016 Frequency semi-annual Discount rate 2.04% 1 2 3 4 5 6 Total 11/19/2013 5/19/2014 11/19/2014 5/19/2015 11/19/2015 5/19/2016 Payment $21.25 $21.25 $21.25 $21.25 $21.25 $1,021.25 PV(Ct) $20.83 $20.41 $20.00 $19.60 $19.21 $904.71 $1,004.75 PV(Ct)/PV 0.0207 0.0203 0.0199 0.0195 0.0191 0.9004 0.0104 0.0203 0.0299 0.0390 0.0478 2.7013 2.8486 Based on the data above, the duration for the Google bond is higher than for the Microsoft bond, however the difference is slight. You can download the original spreadsheet...

When it comes time to inform an investment decision, it’s essential to know whether or not a present opportunity represents enough present value to justify the investment. If so, at what level and over what time period. Certainly risk factors in, and with such a broad range of opportunities today, including stock markets, bonds, start ups, etc., there’s a lot to take in to account. The answer to the value and timing of an investment with respect to other available investments is given by the Present Value formula (ref for all equations). where P is the present value C is the anticipated future cash flow r is the interest rate of an alternative investment of similar risk t is the number of investment periods. This may change depending on compounding Another way to look at this is as a cash flow C and a Discount Factor D. where The rate r above is the opportunity cost of captial, or opportunity cost. Note that for multiple cash flows, the equation can be summed  Amount, Time and Risk From an investment perspective, the focus of the above equation is cash flow. More specifically, Amount of cash flow Timing of the cash flow Risk associate with the cash flow All three items factor in to the present value formula, and the present value formula informs many financial decisions, including being the basis for perpetuity and annuity analysis and...