Interest Groups in Texas Assignment – Minimum Wage

The United States has a minimum wage law prohibiting any employer from paying less than $7.25 per hour. Many states – and even some individual cities – have set local minimum wages higher than the federal level. Texas has declined, keeping our state’s minimum wage the same as in federal law.

Earlier this year, State Representative Senfronia Thompson (D-Houston) filed H.B. 290 (Links to an external site.) to raise the Texas minimum wage in stages, reaching $10.10 by 2024.

The Center for Public Policy Priorities, a left-leaning advocacy organization, supports raising the Texas minimum wage above the federal level. They argue that low-skill workers’ pay has not risen at the same rate as their cost of living – particularly for housing.

The Texas Restaurant Association represents restaurants – large and small – throughout Texas. They have argued that raising minimum wages above the equilibrium level for unskilled workers means that many of the most vulnerable workers will lose their jobs as companies find ways make do with fewer of them. Self-service checkout lines in grocery stores are an example of what happens when wages rise above the natural level set by the market.

For your assignment, write our usual 2 – 5 page essay with three specific sections.

1. If you were representing the Center for Public Policy Priorities at a lobbyist, what would you do to help pass Rep. Thompson’s bill?

2. If you were representing the Texas Restaurant Association as a lobbyist, what would you do to change or defeat the bill?

3. If you were a state legislator, how would you deal with these competing interests? What information would you want, and how would you view the issue? 

Submit in Word. Cite your sources.

Note: This is an essay about interest groups and what they do. Tell me what you would do in each of these three roles. Do notspend your essay telling me what you think about the minimum wage issue.

Resources

Here’s the Center for Public Policy Priorities: http://forabettertexas.org/ (Links to an external site.)

Here’s the Texas Restaurant Association: https://www.txrestaurant.org/ (Links to an external site.)

Here’s H.B. 290: https://capitol.texas.gov/BillLookup/History.aspx?LegSess=86R&Bill=HB290 (Links to an external site.)

The Texas Tribune talks about Texas’ reluctance to address this issue: https://www.texastribune.org/2018/12/20/most-states-raise-their-minimum-wages-texas-refuses-budge/ (Links to an external site.)

Here’s a CPPP position paper on this issue from 2015: https://forabettertexas.org/images/EO_2015_04_MinWage_report.pdf (Links to an external site.)

The Hill News explains some of the problems with raising the minimum wage: https://thehill.com/blogs/pundits-blog/economy-budget/321967-minimum-wage-hikes-fail-to-benefit-low-income-families (Links to an external site.)

The University of Washington has found that Seattle’s higher minimum wage as hurt workers: https://www.washingtonexaminer.com/study-seattles-minimum-wage-is-hurting-the-poor (Links to an external site.)

The Nation Magazine disagrees: https://www.thenation.com/article/no-seattles-15-minimum-wage-is-not-hurting-workers/ (Links to an external site.)

A University of California-Irvine study finds particular problems in poor neighborhoods: https://www.washingtonexaminer.com/policy/economy/higher-minimum-wages-increase-poverty-in-poor-neighborhoods-study-finds

 

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Exotic Food Inc., Capital Budgeting Case

CASE SUMMARY

Exotic Food Inc., a food processing company located in Herndon, VA, is considering adding a new division to produce fresh ginger juice. Following the ongoing TV buzz about significant health benefits derived from ginger consumption, the managers believe this drink will be a hit. However, the CEO questions the profitability of the venture given the high costs involved. To address his concerns, you have been asked to evaluate the project using three capital budgeting techniques (i.e., NPV, IRR and Payback) and present your findings in a report.

CASE OVERVIEW

The main equipment required is a commercial food processor which costs $200,000. The shipping and installation cost of the processor from China is $50,000. The processor will be depreciated under the MACRS system using the applicable depreciation rates are 33%, 45%, 15%, and 7% respectively. Production is estimated to last for three years, and the company will exit the market before intense competition sets in and erodes profits. The market value of the processor is expected to be $100,000 after three years. Net working capital of $2,000 is required at the start, which will be recovered at the end of the project. The juice will be packaged in 20 oz. containers that sell for $3.00 each. The company expects to sell 150,000 units per year; cost of goods sold is expected to total 70% of dollar sales.

Weighted Average Cost of Capital (WACC):

Exotic Food’s common stock is currently listed at $75 per share; new preferred stock sells for $80 per share and pays a dividend of $5.00. Last year, the company paid dividends of $2.00 per share for common stock, which is expected to grow at a constant rate of 10%. The local bank is willing to finance the project at 10.5% annual interest. The company’s marginal tax rate is 35%, and the optimum target capital structure is:

Common equity	50%
Preferred	20%
Debt	30%

Your main task is to compute and evaluate the cash flows using capital budgeting techniques, analyze the results, and present your recommendations whether the company should take on the project.

QUESTIONS

To help in the analysis, answer all the following questions. Present the analysis in one Excel file with the data, computations, formulas, and solutions. It is preferred that the Excel file be embedded inside the WORD document (question 8).

1. What is the total investment amount at the start of the project (i.e., year zero cash flow)?
2. What is the depreciation amount for each year?
   • Create a depreciation schedule
3. What is the after-tax salvage value of the equipment?
4. What is the projected net income and Operating Cash Flows (OCF) for the three years?
   • Complete an income statement for each year.
5. What are the Free Cash Flows (FCF) generated from the project?
   • Create a projected cash flow schedule
6. What is the Weighted Average Cost of Capital (WACC)?
   • Compute the after-tax cost of debt
   • Compute the cost of common equity
   • Compute the cost of preferred stock
   • Compute the Weighted Average Cost of Capital (WACC)
7. Using a WACC of 15%, apply four capital budgeting techniques to evaluate the project, assuming the Free Cash Flows are as follows:

Years	Free Cash Flows
0	$ -252,000.00
1	$118,625.00
2	$127,125.00
3	$181,000.00

The four techniques are NPV, IRR, MIRR, and discounted Payback. Assume the reinvestment rate to be 8% for the MIRR. Also, assume that the business will only accept projects with a payback period of two and half years or less.

Present your findings in a report to the CEO with recommendations as to whether the project should be accepted or rejected based on the four criteria. Your analysis should include a discussion of the decision-making rules for each method. A two-page Word file with the analysis and recommendations written using APA writing style, according to the CSU-Global Guide to Writing and APA Requirements.

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