Get college assignment help at uniessay writers Question 17 (2 points) Assume you deposited $10,000 in a savings account that pays 6%, compounded monthly interest. You wish to withdraw $200 at the end of each month. How many months will it take to deplete the balance? 1) 57 < N<60 months 2) 49 < N< 52 months 3) 53 < N<56 months 4) N < 48 months
Q1 Business Date Chosen Five Years Ago March 10 2014 1-month Nominal T-bill Rate on that Date 3-month Nominal T-bill Rate on that Date 6-month Nominal T-bill Rate on that Date 1-year Nominal T-note Rate on that Date 5-year Nominal T-note Rate on that Date 10-year Nominal T-note Rate on that Date 20-year Nominal T-bond Rate on that Date 30-year Nominal T-bond Rate on that Date Q3. Compute the following tables (see example below): 10-Year Bond Purchased for $1000 5 Years Ago Original Value Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 10 year Nominal T-bond Rate divided by 2 for semi annual payments) S1000 Current 5-Year Yield to Maturity (The most recent at the Fed site 5-year Nominal T-note Rate reported divided by 2 for semi-annual payments) Number of Semi-Annual Periods Remaining Current Value Gain or Loss on the Bond over the 5 years 10 20-Year Bond Purchased for $1000 5 Years Ago Original Value Coupon Rate (From table you completed above at the chosen date from 5 years ago, the original 20- year Nominal T-bond Rate divided by 2 for semi annual payments) Current 15-Year Yield to Maturity (Take the. $1000 average of the most recent 10- and 20-year Nominal T-bond Rates reported at the Fed site, and then divide this average rate by 2 for semi-annual payments) Number of Semi-Annual Periods Remaining Current Value Gain or Loss on the Bond over the 5 years 30 1 (1 1)V 1000 *Current Value= PVBd= Coupon Payment (1 1) Current value example: Q5. Did you gain or lose more on one bond relative to the other? Explain
Problem 6 (12pts.) Symbol System’s common stocks paid $1.65 /share dividend last year (at time -0, Do-$1.65) and the dividends are now expected to grow indefinitely at an annual rate of 6 percent. (A) What is current price of the stock, if the required rate of return on stock (the discount rate on stock) is 14% 2 ( 4pts.) (B) What is expected price of the stock a year from today? (2pts.) (Note: The growth rate in stock price is same as growth rate in dividend). (C) Estimate the expected dividend yield for Symbol stock (3pts.). (Note: Required rate of Return is the sum of expected dividend yield and growth rate of Dividend.) (D) What would be the estimated value of this stock (P) if it is expected to maintain constant dividend of $1.65 (no change in dividend) for foreseeable future? Assume the required rate of return on this stock is 10 percent. (3pts.)
(1.5 Points) If a savings bank pays 25 % interest every 4 months, what are the nominal and effective interest rates per year? (1.5 Points) How much must be deposited now at 5.25% interest to produce $300 at the end of every year for 30 years? (2Points) If interest rate is 10 % ( A) is closes t to: (2.5 Points) If interest rate is 15%, B is closes t to $100 $100 (2.5 Points Using a 10% interest rate, compute B in the diagm
INTEGRATIVE CASE 6 SolarWarld uSA 425 tonalations and initiatives like the “100,000 Roofs Initia tive” The programs included regulated wholesale and retail pricing of electricity and significant incentoes for manufacturers and large-scale solar power production facility operators Op this foundation. SolarWorid built a business whose principal activities include research, develop- ment. production, and marketing of products for solar power generation as well as the installation of complete solar power stations. The company is fully vertically integrated, combining all aspects of the solar product cycle from the raw material silicon to turnkey solar power plants, as well as the develop- ment of proprictary solar systems and power solu tions Controlling all the stages of the product design and production cycle allows the company to uphold high quality and environmental standards through- out the process The SolarWorld group of companies operates an Giermany, Europe. Asia, the US, and other countries It is also involved in the planning, constraction and peration of wind energy and solar energy parks as well as other power stations based on renewable enerpies In 2008, SolarWorld purchased a 480,000-square- foot production facility in Hillsbore, Oregon and added 1.000 emplovees, making it the largest US-based lar manufacturer as well as one of the largest in thes weld fust ke the expansion in Germany a decade arlier, this US cpansion was also larvely driven and upported by government initiatives These incladed regulations, tax incentives, low interest loans and multiple other federal programs The Obama admin isration’s green initiatiyes and “Buy American pro gras were consistent with the desire to expand the US demand fur solar products and to create US jobs taking a beating based upon earnings rumoes These new financial results, to be released tomorrow, will further erode the stock price. in addition to these presiunes SolarWorld USA, a suhsidiary of Germany’s SolarWorld AG, is the largest US-based manufacturer of solar products. In the face of intense Chinese competition, SolarWorld USA’s revenue has declined and margins are in free fall. How can it strvive? SolarWorld USA many of the subsidized loans and tax incentives are based upon revenue performance targets and sustained employment commitments for the US employes Therefore, cost cutting through US production or job redactions is not an option Dacid Darling, Uinisersity of Tesas at Dalas Fabia Bourda, University of Tesas at Dala Solar Technology Solar mergy is a 100% mewable form of emergy that generated by radiant sunlight It is a secondary energ source categonined alongside swind ocean waver power bydroelectriciry, and biomass Onlyvery smal amount of total dectrical power in the world is gmer Gordon Beinser, president of SolarWorld USA (a sub- sidiary of Germany’s SolarWorldAG), reviewed the quarterly financial statements from his office in Hills- boro Oregon It was a bright, sunny afternoon in June 201L Although the clear sunny day was perfect for the production of clectricty from the solar panels his company produced, the financial reports provided stoemy forecast. Beinser had jut come backk to his office from the quarterly business meeting with his top management team, and the results were troubling The sales forecasts showed declining sales, deteriorat- CANADA HILL S8ORO ated using solar energy Solar technologies are beadly characteried a either passive solar or active solar depending on the way they caprure convert and distribute the solar energy Active solar technology includes the se o photovoltaic panels and is the primary prodact of SolarWorld The core obiective of solar panels is to efficiently capture the photons of sunlight and comvem them into useable dlectrical poer 20 PM 428/2010 UNITED STATES of AMERICA Aar Pacfio Gael Me MEXICO ncet ing gross margin, and a rapid reduction in market share. He desperatelr needed to find a way to reverse With the sun setting, knwing that be had to face share holders and teporters with the quarterly financial report ohorrow, Brinser began to write donwn the s options and plans for SolarWorld In the bak of his mind be was wodering “Howe can SolarWorld snr in world of intense Chanese competition this downward trend in sales yolume and to increase US Solar Power Utilization The United States has multiple sources of fue energy for the production of electricity. Coal is the predominant fuel used and the US has large coal reserves Coal is followrd by muclear power and then atural gas. The average retail price paid for clectri city in the US in 2010 was 50.1046 per kilowat hour. The reasonable price for electricity in the US provides very little incentive for producers or con- sumers to quickly move to altemanive ferms of sales margins in the face of serious market competition. Particularly teoubling solar panel makers These loM-cost suppliers came from forecasts and SolarWorld’s leadine market share posit was the pressure from Chimese reiatve oscority and were now the dominant players gobally Thousands of US jobs, andreds of millions of dollars, and the future of SolarWorkd were at stake As Brimser intently studed the financial docaments, he tecounted how rapidly the shaation had changed in the solar pandl industry Just three short years before, riding the waves of poli- tical support recent financial success, and anticipating bright growth prospects in North America, SolarWorld had deamatically increased its US nsestment. The future had semed bright due to the dramatic growth in the sales From the aetere beginnings as Solar Technoisy r national in 1975, SolarWorld AG ermergod an e a enter Germany’s rapidiy incresingsolar marker The dramatic growth of the German solaE industry wa do ven by the German gowernment theosagh wide ranpng SolarWorld History rporate Financial Performance SelarWold is straggling with serious financial problems Shown in Exbibit 1. revenue has deureased by 2IS bween 202010 and 202011, In addition, the decining pos margn due to salcs price erosion has resulted in a % docreane in coniolidated net income. Investors and redtors rely heavily on the quarterly performance Tets in making their imestment deciions The com pay’s sock price, alse shown in Exhibit 1. has beem energy Renewable energy makes ap 8% of the total power production and consumption in the US with photoval taic generation supplying 1% cf the toal ewable energy The primary reasae for the small percentage of utiliration is the high comparanive cot of solar power and the capstal imvestmsent required Actal pe formance and financal d pde call to obtan from public sources, so as part of this cae resanch a quotation for a rood mounted phootaic stem was IThe caww DdDag F S nas at Delle 1MBA 2012wnder the perv Ped M ba for de dncucn eher then to intrane the eflo.ttse gr inedlo hundeye e thoe of fhe athors Cn their prvate capairy as FEBA wdmt do not ee an Pe The parpese the cae is to see adr tve s n The vien apesed dase of the indrndah and orgmn sricned David Darlmg, and Taba Boenda Reprinmed with per do 424. INTEGRATIVE CASE
Financial Tools 144 PART 2 Technica, Inc, Balance Shets December 31 2015 S 15.000 2014 Asets S 16.000 Cash 7,200 s,000 Markesbie secvritin 34,100 2,000 42,200 Accounts recivable s0,000 Inventories $116.200 $138 300 Teal carrent aets $150,000 $150,000 Land and buildng 200,000 190,000 Machinery and equipment Furniture and fxtures 50,000 10,000 54,000 11,000 Other Toal gross foed anes $400,000 $415,000 115,000 $285,000 145,000 Less Accumlaned depreciation $270,000 Net fixed assets $401.200 5408,000 Total sssets and Seockholden’ Equity Lia S 49,000 S 57,000 Accounes payable Noses parable 16,000 13,000 5,000 S 75000 6,000 S 71,000 $160,000 Accreals Toal cure liablities Lone-term dele Cammon stock oity (shar outarandng 19,500 in 2015 and 20,000 in 2014) $150,000 S120,000 $110.200 50,200 73.100 Retained earmings Tecal ockholders’ eqaity Tocal Sabilities and ockholdees’ equity $170,200 $183,300 $401,200 $408.300 Technica, Inc, Sarement of Retained Eaming for the Year Eeded December 31, 2015 $50,200 42,900 20,000 $73,100 Retained eaning balance Janary 1, 2015) Ma Net profts ahe as or 2015)% Less Cash dividends (pail dueing 2015) Retained eamingp balance (December 31, 2015) Financial statement account identification Mark cach of the accounts listed in the P3-2 LG 1 following table as follows a. In column (1), indicate in which statement-income statement (15) or balance sheet (BS)-the account belongs b. In column (2), indicate whether the eccount is a current asset (CA), current liabl- ity (CL), expense (E), fixed asset (FA), long-term debt (LTD), revenue (R), or stockholders’ equity (SE)
Three people set out to build essentially identical apartment building in similar real estate markets for the same cost of $3.2 million. The three developers have the following characteristics: John is 45 and married with three children between the ages of 8 and 14 Ten years ago, he went bankrupt and lost the title to his home and all assets. He has reestablished himself again but promised himself that he would never again loss it all. He limits his mortgage financing (by the bank) to a maximum of 50% of the project value. Helen is 24 and a recent graduate in civil engineering. Her uncle has decided to stake her in real estate development (give her equity). Helen thinks of herself as being a moderate risk taker and has little bad experience with failure. After discussions with her uncle, she is prepared to bank finance 70% of the project. Donald is 38 and determined to become very rich. He has been involved in a number of small business ventures and now wants to get into property development to get rich in a hurry. He has a strong ego and believes he can tolerate failure and bounce back again. He uses his slick and persuasive style to obtain 90% financing from the bank. The pro forma highly abbreviated first-year income statement for the apartment complex, used in discussion with the bank that is considering the mortgage, is shown in the following table. Develop a downside case, where due to downturn in the local economy, the vacancy rate goes from 5% to 20%, and annual rental income per unit drops by 20% (already given in the statements below) Leverage in Good Times Pro Forma Income Statement ($) John Donald (First Year) Helen Number of Units 56 56 56 Project Cost Capital Cost per Unit Annual Rent per Unit $3,200,000 $57,143 $11,200 $3,200,000 $57,143 $11,200 $3,200,000 $57,143 $11,200 Income at Full Occupancy Less Vacancy Factor (5%) Adjusted Gross Income $627,192 $31,360 $595,832 $627,192 $31,360 $595,832 $627,192 $31,360 $595,832 Cash Expenses Depreciation $162,366 $128,000 $162,366 $128,000 $162,366 $128,000 $305,466 Income before debt service Cash flow before debt $433,466 service “Earning Power of the Project” 9.55% 70% 90% Leverage Equity 50% $1,600,000 $1,600,000 $128,000 Debt Interest cost (@rate of 8%) Pre Tax Net Income $177,466 Tax (40% of Pre-tax net income) After Tax Net Income $70,987 $106,480 Cash Flow Before Principal Repayment Principal Repayment Cash Flow After Principal Repayment $234,480 $34,944 $199,536 Cash Return on Equity 12.47% Leverage in Bad Times Pro Forma Income Statement ($) John Helen (First Year) Donald Number of Units 56 56 56 Project Cost Capital Cost per Unit Annual Rent per Unit $3,200,000 $57,143 $8,960 $3,200,000 $57,143 $8,960 $3,200,000 $57,143 $8,960 $501,752 $100,350 $401,402 Income at Full Occupancy Less Vacancy Factor (20%) Adjusted Gross Income $501,752 $100,350 $401,402 $501,752 $100,350 $401,402 $162,366 $128,000 $162,366 $128,000 $162,366 $128,000 Cash Expenses Depreciation $111,036 Income before debt service Cash flow before debt $239,036 service “Earning Power of the Project” 3.47% Leverage Equity 50% 70% 90% $1,600,000 $1,600,000 $128,000 Debt Interest cost (@ rate of 8%) Pre Tax Net Income ($16,964) Tax (40% of Pre-tax net income) After Tax Net Income $0 ($16,964) Cash Flow Before Principal Repayment Principal Repayment Cash Flow After Principal Repayment $111,036 $34,944 $76,092 Cash Return on Equity 4.76% For each of the three developers, complete the projections in the income statements (20 points) by calculating first-year pro forma after-tax net income, cash flow and return on equity based on cash flow after principal repayment a. Does each developer have enough cash to make the principal repayment in year 1? (10 points) b. For the pro forma case, approximately how many years would it take for each developer to recover his or her equity? (10 points) For each of the three developers, calculate the same figures given in the income statement. Check if any developer has negative cash flow, and answer question a and b NOTES: Pro forma means the company calculates financial results based on certain projections or presumptions. Interest cost 8% of Debt Pre-tax net income Income before debt service minus Interest cost Tax 40% of Pre-tax net income After tax net income Pre-tax net income minus Tax Cash flow before principal repayment = After tax net income plus Depreciation Principal repayment (0.10184 multiplied by Debt) minus Interest Cash flow after principal repayment Cash flow before principal minus principal repayment Cash return on equity Cash flow after principal repayment divided by Equity
Mid Exam Financial Management October November December Cash Sales Credit Sales Note: Terms of credit sales payment 1 month Estimate collection 10% on current month credit sales 90% will be collected nextmonth June Credit Sales 200,000,000,– 150,000 000 175,000,000 175,000,000 150,000,000 200,000,000 150,000,000 Investment will be refund-on Dec- Monthly interest.earned on this investment 1 % from 200.000.000.- No indication of Capital Increase. Loan will increase only if necessary An.old vehicle will be selFfor 25,000.000in November. A new replacement will be made in Dec for 150.00O.000.-new car 200,000,000 4S 25,000,000 !0 r? Purchase of Inventories in credit Payment 1 month after purchasing Credit Purchase of Sept 90:000:000- Cash Purchase Rent of office will be expired end of December and will sign a.new contract for another 2 years@ 30.000.000. -per year The company need to buy 1 set of computer but you will decide which month is suitable to the cash flow. 1 set PC Rp.7.500.000.- You can decide for new investment if there are idle money 85,000,000 90,000,000 100,000,000 8,000,000- 9,500,000 8,500,000 EBIOD 1A1es NCUS926 SCIGG OU RAGUGi RUAEaftueu noitpelt AN Cash Flow Forecasting October November December Balance from prior period A 30,000,000 Flow In Cash Sales Debtor Colection How m eposit $4 000ea for the next 3 years. Compound quartery Refund of Investment Interest Eamed on Investment Capital Increase Loan Sales of fixed assets with 12% annual interest rate FVIFA PERIOD 1 3% 12% 1.000 Total Receipt 3.091 4.184 5.309 8.488 7.882 8.892 10.159 3.3740 4.7790 8.3530 Flow Out Cash Purchases A/P Payment Anterest on Loan/ Overdraft Loan Repayments Tax Payments Operational Expenses – Regular Other Advance payments Additional of Fixed Assets 5 8.1150 10.0890 12.3000 14.7760 17.5490 10 11.484 20.6550 14.192 24.1330 15.818 28.0290 32.3930 11 12.808 12 13 Investment 17.086 14 Dividends Total Payment hs eut Tatal Cash Balance A B-C wareutugucto usdomeur
scORE PMCI CAMPUS BA YUt-b 1753 t o o3s Cash Flow Forecasting octobaron 000 November A Balance from prior period December ah ales future value of money hdepa 54.000 each begining of au Debror a estment with 12 % annual Interest rate interest Eamed c Increase Investment Sales of fixed assets FVIFA 1 25 Opn..000 PERIOD 3% 1,000 12% .0000 Total Recelpt B 3 3740 4. 8.3530 8.1150 Flow out Cash Purchases A/P Payment 4 6.468 pan /Overdraft an Repayments rax Payments: 12.300 8.892 10.159 14.7760 9 enses- Regular Oper nce payments 10 1 12 8 20.6550 24.1330 Additional of Fixed Assets Pinvestment Dividends 14.192 15.618 17.086 13 28 2 3930 14 Total Payment M C Tatal Cash Balance ree bsceu TA B-Ca 2H4400 one JJJ Mid Exam Financial Management October November December Cash Sales Credit Sales Note: Terms of credit sales payment 1 month Estimate collection 10% on current month credit sales 90% will be collected nextmonth June Credit Sales 200,000,000,– 150,000 000 175,000,000 175,000,000 150,000,000 200,000,000 150,000,000 Investment will be refund-on Dec- Monthly interest.earned on this investment 1 % from 200.000.000.- No indication of Capital Increase. Loan will increase only if necessary An.old vehicle will be selFfor 25,000.000in November. A new replacement will be made in Dec for 150.00O.000.-new car 200,000,000 4S 25,000,000 !0 r? Purchase of Inventories in credit Payment 1 month after purchasing Credit Purchase of Sept 90:000:000- Cash Purchase Rent of office will be expired end of December and will sign a.new contract for another 2 years@ 30.000.000. -per year The company need to buy 1 set of computer but you will decide which month is suitable to the cash flow. 1 set PC Rp.7.500.000.- You can decide for new investment if there are idle money 85,000,000 90,000,000 100,000,000 8,000,000- 9,500,000 8,500,000 EBIOD 1A1es NCUS926 SCIGG OU RAGUGi RUAEaftueu noitpelt AN
This Setup pertains to the next four questions: You are analyzing the beta of HP and have divided the company into four business groups. Currently HP has 4 billion of debt outstanding (assume equally distributed among divisions $1B each) and subject to 6 corporate tax; betas and market values for each group are: Unlevered Beta Market Value Business Group 0.74 2.25 Mainframes 1.4 2.25 Personal computers 2 Software 3.125 1.3 3.375 Printers 10) What is the unlevered beta of HP: 0.83 a b. 1 c. 1.29 d. 1.37 e. 1.42 11) What is the levered beta of HP: 1.1 a. b. 2.05 1.97 c. d. 2.51 2.11 e. nglish (US)
Get college assignment help at uniessay writers Cash Flow Forecasting October November December Balance from prior period A 30,000,000I Flow In Cash Sales Debtor Collection Refund of Investment Interest Earned on Investment Capital Increase Loan How mu you dep for the with 12 FVIF PER ales of fixed assets 25Opn.000 Total Receipt Flow Out Cash Purchases A/P Payment Interest on Loan/ Overdraft Loan Repayments Tax Payments LOperational Expenses- Regular Other Advance payments Additional of Fixed Assets investment Dividends a’noo. Total Payment ou OTatal Cash Balancee bsA A B-C Lon3S MAJOR/ CLASS SUBJECT BA XULL-S6 Stna TURER Srkas hana gemnent 25/6-20l DA DATE SIGN Mid Exam Financial Management December November October 200,000,000 150,000,000 175,000,000 150,000,000 150.000,000 175 000.000 Cash Sales Credit Sales Note Tern of credit sales payment 1 month collection 10% on current month credit sales 90% will be collected nextmonth June Credit Sales 200,000,000,-1 200,000,000 Investment will be refund-on Dec- Monthly Interest earned on this investment 1 % from 200.000,000.- No indication of Capital Increase. Loan will increase only e 0000-in November. 25,000,000 An old vehicle will be A new replacement will be made in Dec for 150.000.000.- new car 100,000,000 90,000,000 85,000,000 Purchase of Inventories in credit Payment 1 month after purchasing? Credit Purchase of Sept 90:000:000: Cash Purchase Rent of office will be expired end of December and will sign anew contract for another 2 firstname.lastname@example.org.-per year The company need to buy 1 set of computer but you will decide which month is suitable to the cash flow 1 set PC Rp.7.500.000.- You can decide for newinvestment if there are idle money 8,500,000 9,500,000 8,000,000- OUSS26 wearueu 30 000 000 TeCELpe OUbyobeged Diesoonowolt da
BA YUH-S 1753 o035 ember How much the future value of money if you deposit $4.000 each begining of quarter for the next 3 years. Compound quarterty with 12% annual interest rate FVIFA PERIOD 1 12% 1.0000 2.1200 3.3740 3% 1.000 2.030 3.091 2 3 4.7790 4.184 4 6.3530 8.1150 10.0890 12.3000 14.7760 17.5490 20.6550 24.1330 28.0290 32.3930 5.309 6.468 7.662 8.892 6 7 10.159 11.464 12.808 10 11 14.192 12 15.618 13 17.086 14
In a 2-3 page analysis, answer the following questions: Warf Computers, Inc., was founded 15 years ago by Nick Warf, a computer programmer. The small initial investment to start the company was made by Nick and his friends. Over the years, this same group has supplied the limited additional investment needed by the company in the form of both equity and short- and long-term debt. Recently the company has developed a virtual keyboard (VK). The VK uses sophisticated artificial intelligence algorithms that allow the user to speak naturally and have the computer input the text, correct spelling and grammatical errors, and format the document according to preset user guidelines. The VK even suggests alternative phrasing and sentence structure, and it provides detailed stylistic diagnostics. Based on a proprietary, very advanced software/hardware hybrid technology, the system is a full generation beyond what is currently on the market. To introduce the VK, the company will require significant outside investment. Nick has made the decision to seek this outside financing in the form of new equity investments and bank loans. Naturally, new investors and the banks will require a detailed financial analysis. Your employer, Angus Jones
In a 2-3 page analysis, answer the following questions: Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $850 million today, and it will have a cash outflow of $75 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Bullock Mining has a 12 percent required return on all of its gold mines. Year Cash Flow -$850,000,000 170,000,000 190,000,000 205,000,000 265,000,000 0 1 2 3 4 5 235,000,000 6 170,000,000 160,000,000 7 105,000,000 -75,000,000 1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine. 2. Based on your analysis should the company open the mine? Explain in detail the different measures which you have calculated for this case. Specifically, provide an explanation of payback period, IRR, MIRR and NPV. Also, explain how business’ use these for decisions and the potential advantages/disadvantages of each. In your 2-3 page analysis, be sure to thoroughly answer the questions presented with a strong supporting rationale. Your paper should be formatted in APA style with a title page.
Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 11 million shares of common stock outstanding. The stock currently trades at $48.50 per share. Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $45 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pretax earnings by $10 million in perpetuity. Kim Weyand, the company’s new CFO, has been put in charge of the project. Kim has determined that the company’s current cost of capital is 10.5 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a coupon rate of 7 percent. Based on her analysis, she also believes that a capital structure in the range of 70 percent equity30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate (state and federal). .. If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain Review Stephenson’s market value balance sheet before it announces the purchase. Suppose Stephenson decides to issue equity to finance the purchase. o What is the net present value of the project? o Review Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase? o Review Stephenson’s market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock? o Review Stephenson’s market value balance sheet after the purchase has been made. Suppose Stephenson decides to issue debt to finance the purchase o What will the market value of the Stephenson company be if the purchase is financed with debt? o Review Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock? Which method of financing maximizes the per-share stock price of Stephenson’s equity? In a 2-3 page analysis, answer the questions provided at the end of the case study. Be sure to support your analysis with appropriate calculations and critical thought. Week 6 STEPHENSON REAL ESTATE RECAPITALIZATION Market value balance sheet before the land purchase is: Market value balance sheet $533,500,000 $533,500,000 Assets Equity Debt
Suppose a firm has 10 million shares of common stock outstanding and seven candidates are up for election to three seats on the board of directors. If the firm uses cumulative voting to elect its board, what is the minimum number of votes needed to ensure election to the board? A) 3,000,000 10,000 ccox3= 30/000ao B) 4,285,715 ) 5,000,000 D) 7,500,001 E) 10,000,000 – 3750001 Saoo
4) A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If his parents give him $20,000 for a down payment, what is the most he can pay for a house with a 15-year mortgage if the interest rate is 5.50 percent?
SMPrime Holdings is a closely held corporation with a capital structure composed entirely of common stock and retained earnings. The stockholders have an agreement with the company that states the company will purchase the stock of a shareholder should a shareholder want to sell his or her holdings in the company. The agreement states that the stock will be purchased at a price equal to the stock’s previous year-end book value per share. Early in October 2017, Mrs Bean, a widow of one of SM Prime’s major stockholders expressed an interest in selling her stock in accordance with the buy-back pricing agreement. Mrs Bean owns 600,0000 shares of the 3 million shares of SM Prime’s common stock. The Board of Directors has concluded that the company must replace the capital used to repurchase the shares. The board has assurances that it would be to finance the acquisition of stocks by borrowing the necessary funds on 10-year notes through private placement at an annual interest rate of 10 percent. Thus the company would have capital provided by debts and perhaps be able to take advantage of financial leverage. The Board and Mrs Bean agreed that the exchange will take place on January 01, 2018. The book value per share of common stock is projected to be P50 on December 31, 2017. The comptroller of SM Prime Holdings had prepared a forecast and pro forma statements for the year 2018. An excerpt of the forecasted earnings statement for the year ended December 31, 2018 is presented below (in thousands of pesos). SM Prime used a 40 percent income tax rate in the forecasted statement. The pro forma statements do not reflect the repurchase of Mrs. Bean’s shares or the new issue of debt required to pay for the shares. P50,000 20.000 30,000 Income before interest and taxes Less: Income taxes @40% Net Income ======= Answer the following requirements 1. Revised the excerpt from SM Prime Holdings’ forecasted earnings statement for the year ended December 31, 2018 to reflect the long-term debt financing to be used the purchase Mrs Bean’s common stock. Assume the 40 percent tax rate will still be applicable. 2. Explain the impact of long-term debt financing would have on SM Prime Holdings’ earnings per share (EPS) and return on stockholders’ equity (RCOE) using the forecasted data for 2018. 3. Identify and discuss the advantages and disadvantages of financial leverage fo a company that has a capital structure similar to that of SM Prime Holdings before and after this long-term debt has been added.
The Boeing Company and Subsidiaries Consolidated Statements of Operations (Dollars in millions, except per share data) Years ended December 31, Sales of products Sales of services 2018 2017 2016 $90,229 $83,740 $83,198 10,898 101,127 10,265 10,298 94,005 93,496 Total revenues (68,879) (71,013) (7,954) (59) (79,026) 14,470 Cost of products (72,922) (8,499) (69) (81,490) 19,637 Cost of services (7,663) (70) Boeing Capital interest expense Total costs and expenses (76,612) 17,393 Income from operating investments, net General and administrative expense 111 204 303 (4,567) (3,269) (4,095) (3,179) (3,613) (4,626) (7) 6,527 (438) (306) 5,783 Research and development expense, net Gain/(loss) on dispositions, net Earnings from operations Other income/(loss), net Interest and debt expense y Earnings before income taxes Income tax expense Net earnings 75 21 11,987 10,344 123 92 (475) 11,604 (360) 10,107 (1,649) $8,458 (1,144) $10,460 (749) $5,034 Basic earnings per share $18.05 $14.03 $7.92 Diluted earnings per share $17.85 $13.85 $7.83 See Notes to the Consolidated Financial Statements on pages 54-113.
The Boeing Company and Subsidiaries Consolidated Statements of Financial Position (Dollars in millions, except per share data) December 31, 2018 2017 Assets Cash and cash equival ents $7,637 $8,813 Short-term and other investments 927 1,179 Accounts receivable, net 3,879 2,894 Unbilled receivables, net Current portion of customer financing, net 10,025 8,194 460 309 Inventories 62,567 61,388 2.417 Other current assets 2,335 Total current assets 87,830 85,194 Customer financing, net Property, plant and equipment, net 2,418 2,756 12,645 12,672 Goodwill 7,840 3,429 5,559 Acquired intangible assets, net Deferred income taxes 2,573 284 321 Investments 1,087 1,260 Other assets, net of accumulated amortization of $503 and $482 1,826 2,027 Total assets Liabilities and equity Accounts payable $117,359 $112,362 $12,916 $12.202 Accrued liabilities 14,808 13,069 48,042 Advances and progress billings Short-term debt and current portion of long-term debt 50,676 3,190 1,335 Total current liabilities 81,590 74,648 2,188 Deferred income taxes 1,736 Accrued retiree health care Accrued pension plan liability, net Other long-term liabilities 4,584 5,545 15,323 3,059 16,471 2,015 Long-term debt Shareholders’ equity: Common stock, par value $5.00-1.200,000,000 shares authorized: 1,012.261,159 shares issued Additional paid-in capital Treasury stock, at cost Retained eamings 10,657 9,782 5,061 6,768 (52,348) 5,061 6,804 (43,454) 55,941 (15,083) 339 49,618 Accumulated other comprehensive loss Total shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity (16,373) 1,656 71 57 410 1,713 $112,362 $117.359 See Notes to the Consolidated Financial Statements on pages 54-113.
The Boeing Company and Subsidiaries Consolidated Statements of Cash Flows (Dollars in millions) Years ended December 31, Cash flows-operating activities 2016 2017 2018 $8,458 $5,034 $10,460 Net earnings Adjustments to reconcile net eamings to net cash provided by operating activities: Non-cash items- 190 202 202 Share-based plans expense 2,047 1,889 90 2,114 Depreciation and amortization Investment/asset impairment charges, net Customer financing valuation (benefit expense (GainVloss on dispositions, net Other charges and credits, net Changes in assets and iabilities- Accounts receivable 113 93 (7) 7 (3) (21) 293 (75) 247 371 326 (840) (1,600) 4,700 (1,403) (19) (795) (1,826) 792 Unbilled receivables Advances and progress billings Inventories (1,362) 4,004 2,636 568 (200) 622 312 (734) (68) 98 Other current assets 130 2 Accounts payable 335 1,117 Accrued iabilities 656 (180) Income taxes receivable, payable and deferred Other long-term liabities 94 87 153 (582) (153) Pension and other postretirement plans Customer financing, net Other Net cash provided by operating activities (662) (261) 10.496 120 1,041 (260) 13,346 610 15,322 Cash flows-investing activities: Property, plant and equipment additions Property, plant and equipment reductions Acquisitions, net of cash acquired Contributions to investments Proceeds from investments Purchase of distribution rights (2.613) (1,739) 92 (324) (3.569) 3,607 (131) 6 (1,722) 38 120 (297) (1.719) 1,206 (3,230) (2,607) 2,898 (69) (11) (4.621) Other 2.058) 3.378) Net cash used by investing activities Cash flows-financing activities: New borrowings Debt repayments Repayments of distribution rights and other asset financing Contributions from noncontrolling interests 1,325 (1.359) 2.077 (953) 8.548 (7,183) (24) 35 321 81 311 Stock options exercised Employee taxes on certain share-based payment arrangements Common shares repurchased (132) (9,236) (3.417) (11,350) 80 (93) (257) (9,000) (3,946) (7,001) (2.756) (8.587) Dividends paid Net cash used by financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) / increase in cash
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