Friday 5 May 2017

FIN504 ALL MODULE DISCUSSION , MODULE 3,4,5,6,7 HOMEWORK AND FINAL PAPER

FIN504 ALL MODULE DISCUSSION , MODULE 3,4,5,6,7 HOMEWORK AND FINAL PAPER

 

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MODULE 1 DQ 1


Reconcile high standards of ethical business practices with the concept of shareholder wealth maximization and stakeholder theory. What responsibility do executives have to their shareholders and their stakeholders?





MOD 1 DQ 2

What role do financial institutions play in financial management? What role do financial markets have in financial management? Please compare and contrast the two.






WEEK 2 DQ 1


Identify two publicly traded corporations in the same industry and compare and contrast their current ratios, quick ratios, and debt to equity ratios. Explain what these ratios mean and how they help the reader understand the differences between the two companies.


MOD 2 DQ 2

What are two key elements of the financial planning process? Why is cash planning as vital as profit planning? Can you provide a contemporary example where cash flow and profits did not go hand-in-hand?



MOD 3 DQ 1

How does the concept of the time value of money affect decisions made across the four executive roles of management – planning, organizing, leading, and controlling? Why is this concept important for the contemporary executive to understand?






MOD 3 DQ 2



Why is the time value of money important for an individual to understand in regard to their private life? What can an individual do with this information?



MOD 4 DQ 1


How would you explain yield to maturity (YTM) to a friend with no background in finance?








MOD 4 DQ 2

What are interest rate fundamentals? Explain term structure and risk premiums. How do these concepts come into play in the real world (mortgage rates, bond prices, etc.)?



MOD 5 DQ 1


Explain the meaning of risk, return, and risk preferences? Why is risk not the chance of taking a loss?






Mod 5 dq 2

For the average business leader who is not in a finance role, how do risk, return, and the cost of capital impact him or her? How can you synthesize this into the workplace?



mod 6 dq 1

Explain how a net present value (NPV) profile is used to compare projects. How does this compare to internal rate of return (IRR)? How does reinvestment affect NPV and IRR?






mod 6 dq 2



Capital budgeting can be affected by exchange rate risk, political risk, transfer pricing, and strategic risk. Explain how these factors may and can impact capital budgeting.







mod 7 dq 1

Explain what capital structure is. Find two publicly traded companies and compare and contrast their capital structures.


mod 7 dq 2

Explain the cash conversion cycle (CCC) and net working capital. Why is this important to the contemporary executive? How do executive decisions regarding CCC and net working capital affect the company? Provide an example.





mod 8 dq 1


Introduce the company that you have selected for the Case Study Analysis. Why did you select this company? Explain the process you are using to assess your company's future financial health.


mod 8 dq 2

Describe your experience building the financial analysis. What has been the easiest, the most difficult? What has surprised you? What have you learned?




MODULE 3
Details:
Using Excel, and the Gitman chapter 5 Excel resource, if needed, complete the following problems from chapter 5 in Principles of Managerial Finance:
  1. P5-2
  2. P5-3
  3. P5-13
  4. P5-20
  5. P5-30
  6. P5-36
  7. P5-43
Please show all work for each problem.




Uma Corp.
Present Value of Expected Future Savings
Period: 2013 through 2023
Discount rate for years 2013 - 2018 0.07
Discount rate for years 2019 - 2023 0.11
Annual Present
Year Period Savings PV Lump Sum PV Annuity PV Lump Sum Value
2013 1 110000 =C10/(1+$E$5)^B10 =D10
2014 2 120000 =C11/(1+$E$5)^B11 =D11
2015 3 130000 =C12/(1+$E$5)^B12 =D12
2016 4 150000 =C13/(1+$E$5)^B13 =D13
2017 5 160000 =C14/(1+$E$5)^B14 =D14
2018 6 150000 =C15/(1+$E$5)^B15 =D15
2019 7 90000 =C16*((1-(1/(1+$E$6)^B14))/$E$6) =E16/(1+$E$5)^B15 =F16
2020 8 90000
2021 9 90000
2022 10 90000
2023 11 90000
=SUM(C10:C20) =SUM(G10:G20)


MODULE 4












Details:
Using Excel, and the Gitman chapters 6 and 7 Excel resource, if needed, complete the following problems from chapters 6 and 7 in Principles of Managerial Finance:
  1. P6-1
  2. P6-10
  3. P6-13
  4. P6-20
  5. P7-1
  6. P7-6
  7. P7-14
Please show all work for each problem.









Chapter 6 Interest Rates and Bond Valuation
Given Data:
CSM Corporation
Coupon-interest rate 0.06
Par Value 1000
Maturity 15 years
Current bond price 874.42
Assume that interest on the CSM bond is paid semiannually.
Compound period m 2
Modified n = =B7*B11
Modified payment = =(B5*B6)/B11
Annual r 0.074
modified r = =B14/B11
Trial and Error method: Choose various required rates to determine the current bond value.
Cell B14 should be blank.
Cell B15 should have the formula: B14/B11
The spreadsheet will recalculate each time. Continue the process until the value of the bond
equals the current price of the bond (in this problem it is a premium of $874.42.
Remember that for a bond to be priced at a premium, the coupon rate must be greater than the YTM.
Remember that for a bond to be priced at a discount, the coupon rate must be less than the YTM.
Year Periods Payment PV Payments
2011 0
1 =$B$13 =(C31/((1+$B$15)^B31)) =$B$13 PVA =G31*((1-(1/((1+$B$15)^B60)))/$B$15)
2012 2 =$B$13 =(C32/((1+$B$15)^B32))
3 =$B$13 =(C33/((1+$B$15)^B33))
2013 4 =$B$13 =(C34/((1+$B$15)^B34)) =B6 PV =(G34/((1+$B$15)^B61))
5 =$B$13 =(C35/((1+$B$15)^B35))
2014 6 =$B$13 =(C36/((1+$B$15)^B36)) Bond Value =SUM(I31:I35)
7 =$B$13 =(C37/((1+$B$15)^B37))
2015 8 =$B$13 =(C38/((1+$B$15)^B38)) Current Bond Value =B8
9 =$B$13 =(C39/((1+$B$15)^B39))
2016 10 =$B$13 =(C40/((1+$B$15)^B40))
11 =$B$13 =(C41/((1+$B$15)^B41))
2017 12 =$B$13 =(C42/((1+$B$15)^B42)) Prove the following:
13 =$B$13 =(C43/((1+$B$15)^B43)) When k = 0.08 value = 827.08
2018 14 =$B$13 =(C44/((1+$B$15)^B44)) ????? value = =B8
15 =$B$13 =(C45/((1+$B$15)^B45)) 0.06 value = 1000
2019 16 =$B$13 =(C46/((1+$B$15)^B46))
17 =$B$13 =(C47/((1+$B$15)^B47))
2020 18 =$B$13 =(C48/((1+$B$15)^B48))
19 =$B$13 =(C49/((1+$B$15)^B49))
2021 20 =$B$13 =(C50/((1+$B$15)^B50))
21 =$B$13 =(C51/((1+$B$15)^B51))
2022 22 =$B$13 =(C52/((1+$B$15)^B52))
23 =$B$13 =(C53/((1+$B$15)^B53))
2023 24 =$B$13 =(C54/((1+$B$15)^B54))
25 =$B$13 =(C55/((1+$B$15)^B55))
2024 26 =$B$13 =(C56/((1+$B$15)^B56))
27 =$B$13 =(C57/((1+$B$15)^B57))
2025 28 =$B$13 =(C58/((1+$B$15)^B58))
29 =$B$13 =(C59/((1+$B$15)^B59))
2026 30 =$B$13 =(C60/((1+$B$15)^B60))
2026 30 =B6 =(C61/((1+$B$15)^B61))
Bond Value =SUM(D31:D61)
Current Bond Price =B8






Chapter 7 Stock Valuation
Given Data:
Most Recently Paid Dividend $3.00 Do
Growth Rate in Earnings 7% g
Required rate of return 10% r
model: Po = (Do (1 + g )) / (r - g)
Current Price of stock Po = $107.00
One year later:
Most Recently Paid Dividend $3.21 Do
Growth Rate in Earnings 7% g
Risk Premium 6.74% RPa
t-bill rate 5.25% Rf
New required return 11.99% rnew
New intrinsic value of stock $68.83 Po











MODULE 5




Details:
Using Excel, and the Gitman chapters 8 and 9 Excel resource, if needed, complete the following problems from chapters 8 and 9 in Principles of Managerial Finance:
  1. P8-1
  2. P8-4
  3. P8-14
  4. P8-23
  5. P9-1
  6. P9-2
  7. P9-17
Please show all work for each problem.






Forecasted Returns, Expected Values, and Standard Deviations for
Assets A, B, and C and Portfolios AB, AC, and BC
Assets Portfolios
Year A B C AB AC BC
2013 0.1 0.1 0.12 =SUMPRODUCT($C$24:$D$24,C7:D7) =($C$24*C7)+($E$24*E7) =SUMPRODUCT($D$24:$E$24,D7:E7)
2014 0.13 0.11 0.14 =SUMPRODUCT($C$24:$D$24,C8:D8) =($C$24*C8)+($E$24*E8) =SUMPRODUCT($D$24:$E$24,D8:E8)
2015 0.15 0.08 0.1 =SUMPRODUCT($C$24:$D$24,C9:D9) =($C$24*C9)+($E$24*E9) =SUMPRODUCT($D$24:$E$24,D9:E9)
2016 0.14 0.12 0.11 =SUMPRODUCT($C$24:$D$24,C10:D10) =($C$24*C10)+($E$24*E10) =SUMPRODUCT($D$24:$E$24,D10:E10)
2017 0.16 0.1 0.09 =SUMPRODUCT($C$24:$D$24,C11:D11) =($C$24*C11)+($E$24*E11) =SUMPRODUCT($D$24:$E$24,D11:E11)
2018 0.14 0.15 0.09 =SUMPRODUCT($C$24:$D$24,C12:D12) =($C$24*C12)+($E$24*E12) =SUMPRODUCT($D$24:$E$24,D12:E12)
2019 0.12 0.15 0.1 =SUMPRODUCT($C$24:$D$24,C13:D13) =($C$24*C13)+($E$24*E13) =SUMPRODUCT($D$24:$E$24,D13:E13)
Statistics:
Expected value =AVERAGE(C7:C13) =AVERAGE(D7:D13) =AVERAGE(E7:E13) =AVERAGE(G7:G13) =AVERAGE(H7:H13) =AVERAGE(I7:I13)
Standard deviation =STDEV(C7:C13) =STDEV(D7:D13) =STDEV(E7:E13) =STDEV(G7:G13) =STDEV(H7:H13) =STDEV(I7:I13)
Note: In each two stock portfolio, the weights of each security is equal
0.5 0.5 0.5





Chapter 9 The Cost of Capital
Nova Corporation
Debt
Net Proceeds
maturity 10 Required bond price 980
coupon rate 6.50% Flotation percent 2.00%
par $1,000 Flotation cost $20
coupon payment $65 Net Proceeds $960
Trial and error YTM 7.0714%
End of Year(s) Cash Flow PV
0 $960 $960.00
1 - 10 $(65) (455.03)
10 $(1,000) (504.97)
$0.00 (The YTM of 7.0714% equates the NPV to zero)
Before-tax Cost of Debt 7.0714%
Tax rate 40.00%
After-tax Cost of Debt 4.24% (a)
Preferred Stock
Par value $100.00 Expected sale price $102.00
Annual percentage rate 6% Flotation cost $4.00
Annual dividend $6.00 Net Proceeds $98.00
Cost of Preferred Stock 6.12% (b)
Common Stock
Gordon Model
Expected dividend $3.25
Expected growth rate 5%
Current price $35.00
Flotation cost $2.00
Adjusted Price $33.00 Cost of Common Stock 14.85% (c)
Weighted Average Cost of Capital
Weight in debt 0.35
Weight in preferred stock 0.12
Weight in common stock 0.53
Sum of weights 1.00 WACC 10.09% (d)













MODULE 6


Details:
Using Excel, and the Gitman chapters 10, 11, and 12 Excel resource, if needed, complete the following problems from chapters 10, 11, and 12 inPrinciples of Managerial Finance:
  1. P10-1
  2. P10-5
  3. P10-21
  4. P11-3
  5. P11-12
  6. P12-2
  7. Integrative Case 5: Lasting Impressions Company
Please show all work for each problem.








The Drillago Company
Calculation of the NPV, IRR, and the Payback Period
Facts of case:
maturity (n) 10 years
cost-of-capital (k) 0.13
Initial outlay (pv) 15000000
Excel function =IRR(B12:B22)
Estimated Trial and error 0.147630974
Cash NPV Technique IRR Technique
Year Outflows/Inflows PV PV Payback Technique
0 =-B7 =B12/(1+$B$6)^A12 =B12/(1+$E$9)^A12
1 600000 =B13/(1+$B$6)^A13 =B13/(1+$E$9)^A13 =B12+B13
2 1000000 =B14/(1+$B$6)^A14 =B14/(1+$E$9)^A14 =G13+B14
3 1000000 =B15/(1+$B$6)^A15 =B15/(1+$E$9)^A15 =G14+B15
4 2000000 =B16/(1+$B$6)^A16 =B16/(1+$E$9)^A16 =G15+B16
5 3000000 =B17/(1+$B$6)^A17 =B17/(1+$E$9)^A17 =G16+B17
6 3500000 =B18/(1+$B$6)^A18 =B18/(1+$E$9)^A18 =G17+B18
7 4000000 =B19/(1+$B$6)^A19 =B19/(1+$E$9)^A19 =G18+B19 =G19/B19
8 6000000 =B20/(1+$B$6)^A20 =B20/(1+$E$9)^A20 =G19+B20
9 8000000 =B21/(1+$B$6)^A21 =B21/(1+$E$9)^A21 =G20+B21
10 12000000 =B22/(1+$B$6)^A22 =B22/(1+$E$9)^A22 =G21+B22
=SUM(C12:C22) =SUM(E12:E22) =A18+H19 years
Recap:
NPV =C23 Accept the project as the NPV > 0.
IRR =E8 Approximately as it equates the NPV to Zero.
Accept the project as the IRR (14.76%) > Cost of Capital (13%)
Payback =H23 years approximately



The Damon Corporation
Calculation of the Initial Investment
Installed cost of proposed machine
Cost of proposed machine $145,000
plus: Installation costs 15,000
Total installed cost - proposed $160,000
(depreciable value)
After-tax proceeds from sale of present machine
Proceeds from sale of present machine $70,000
less: Tax on sale of present machine 14,080
Total after-tax proceeds - present $55,920
Change in net working Capital 18,000
Initial investment $122,080
Tax on sale of old machine Change in Working Capital
cost of old machine $120,000 Increase in receivables $15,000
MACRS increase in inventory 19,000
year 1 20% 24,000 increase in payables 16,000
year 2 32% 38,400 Net working capital $18,000
year 3 19% 22,800
Book Value $34,800
Sale price of old machine $70,000
Gain on sale $35,200
Tax rate 40%
Tax Expense $14,080
Depreciation Expense for Proposed and Present
Machines for the Damon Corporation
Year Cost Applicable MACRS depreciation Depreciation
With proposed machine
1 $160,000 20% $32,000
2 160,000 32% 51,200
3 160,000 19% 30,400
4 160,000 12% 19,200
5 160,000 12% 19,200
6 160,000 5% 8,000
Total 100% $160,000
With present machine
1 $120,000 12% $14,400
2 120,000 12% 14,400
3 120,000 5% 6,000
4 0
5 0
6 0
Total $34,800
Calculation of Operating Cash Inflows for Damon Corporation
Proposed and Present Machines
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
With proposed machine
Earnings before depr. and int. and taxes $105,000 $110,000 $120,000 $120,000 $120,000 $-
Depreciation #REF! #REF! #REF! #REF! #REF! #REF!
Earnings before interest and taxes #REF! #REF! #REF! #REF! #REF! #REF!
Taxes 40% #REF! #REF! #REF! #REF! #REF! #REF!
Net operating profit after taxes #REF! #REF! #REF! #REF! #REF! #REF!
Depreciation #REF! #REF! #REF! #REF! #REF! #REF!
Operating cash inflows #REF! #REF! #REF! #REF! #REF! #REF!
With present machine
Earnings before depr. and int. and taxes $95,000 $95,000 $95,000 $95,000 $95,000 $-
Depreciation #REF! #REF! #REF! #REF! #REF! #REF!
Earnings before interest and taxes #REF! #REF! #REF! #REF! #REF! #REF!
Taxes 40% #REF! #REF! #REF! #REF! #REF! #REF!
Net operating profit after taxes #REF! #REF! #REF! #REF! #REF! #REF!
Depreciation #REF! #REF! #REF! #REF! #REF! #REF!
Operating cash inflows #REF! #REF! #REF! #REF! #REF! #REF!
The Damon Corporation
Calculation of the Terminal Cash Flow
After-tax proceeds from sale of proposed machine
Proceeds from sale of proposed machine $24,000
Book value as of end of year 5 8,000
Net gain $16,000
Tax on gain 40% 6,400
Total after-tax proceeds - proposed $9,600
After-tax proceeds from sale of present machine
Proceeds from sale of present machine $8,000
Book value as of end of year 5 0
Net gain $8,000
Tax on gain 40% 3,200
Total after-tax proceeds - present $4,800
Change in net working capital #REF!
Terminal Cash Flow #REF!
Mutually Exclusive Projects
Project Alpha Project Beta
Annual Annual
Cash 10% Cash 10%
Year Outflow/Inflow PVIF NPV PVIFA ANPV Year Outflow/Inflow PVIF NPV PVIFA ANPV
0 -5,500,000 1.0000 $(5,500,000) 0 -6,500,000 1.0000 $(6,500,000)
1 300,000 0.9091 272,727 1 400,000 0.9091 363,636
2 500,000 0.8264 413,223 2 600,000 0.8264 495,868
3 500,000 0.7513 375,657 3 800,000 0.7513 601,052
4 550,000 0.6830 375,657 4 1,100,000 0.6830 751,315
5 700,000 0.6209 434,645 5 1,400,000 0.6209 869,290
6 800,000 0.5645 451,579 6 2,000,000 0.5645 1,128,948
7 950,000 0.5132 487,500 7 2,500,000 0.5132 1,282,895
8 1,000,000 0.4665 466,507 8 2,000,000 0.4665 933,015
9 1,250,000 0.4241 530,122 9 1,000,000 0.4241 424,098 5.7590
10 1,500,000 0.3855 578,315 $350,116 $60,794
11 2,000,000 0.3505 700,988
12 2,500,000 0.3186 796,577 6.8137
$383,499 $56,284
Reviewing the NPV's calculated for the two mutually exclusive projects, we see that project Alpha would be preferred over project Beta
as Alpha has a NPV of $383,499 relative to the NPV of Beta which is $350,116.
However, when we compare these mutually exclusive projects on the basis of their respective ANPVs, project Beta would be preferred over
project Alpha because it provides the higher annualized net present value ($60,794 versus $56,284).











MODULE 7







Details:
Using Excel, and the Gitman chapters 13, 14, 15, and 16 Excel resource, if needed, complete the following problems from chapters 13, 14, 15, and 16 in Principles of Managerial Finance:
  1. P13-5
  2. P13-22
  3. P14-3
  4. P14-15
  5. P15-4
  6. P15-5
  7. P15-10
  8. P16-18
  9. P16-20
Please show all work for each problem.







Chapter 16 Current Liabilities Management
Fixed Rate Loan
Given Data:
Days 365
Loan $200,000.00
Prime Rate 7.00%
Maturity 60 days
Prime Excess 2.00%
a. The total dollar interest cost on the First American Loan
Loan Prime+ Maturity Total Dollar Interest
$200,000.00 9.00% 0.164383562 $2,958.90
b. The 60-day rate on the loan
Total Dollar Interest Loan 60-day Rate
$2,958.90 $200,000.00 1.4795%
c. Effective annual rate of interest on fixed 60-day loan
60-day Rate Periods in Year Effective Annual Rate
1.4795% 6.083333333 9.3453%
Floating Rate Loan
Given Data:
Days 365
Loan $200,000.00
Prime Rate 7.00% 7.50%$$
Maturity 60 30
Prime Excess 1.50%
d. The Initial Rate
Prime Rate Prime Excess Initial Rate-1st 30 day rate
7.00% 1.50% 8.50%
e. Interest Rate for first and last 30-day periods
Intial Rate + Maturity First 30 Day Rate
8.50% 0.082191781 0.6986%
initial rate + Maturity Last 30 day rate
9.00% 0.082191781 0.7397%
f. Total Dollar Interest Cost
Loan 1st 30 Days Last 30-Days Total Interest Cost
$200,000.00 0.6986% 0.7397% $2,876.71
g. 60-Day rate of Interest
Total Interest Cost Loan 60-Day Rate
$2,876.71 $200,000.00 1.4384%
h. Effective Annual Interest Rate on 60-Day Loan
60-Day Rate Periods in Year Effective Annual Rate
1.4384% 6.083333333 9.0762%
Chapter 13 Leverage and Capital Structure
Calculation of Share Value
Estimates Associated with







Alternative capital Structures
Capital Structure Expected Estimated Estimated
Debt Ratio EPS Required Return Share Value
0 1.75 0.114 =B10/C10
10 1.9 0.118 =B11/C11
20 2.25 0.125 =B12/C12
30 2.55 0.1325 =B13/C13
40 3.18 0.18 =B14/C14
50 3.06 0.19 =B15/C15
60 3.1 0.25 =B16/C16







Rock-O Corporation
Stockholders' Equity Section
Before the Reverse Stock Split
Common stock 900,000 shares $1.00 par $900,000
Paid-in-Capital 7,000,000
Retained Earnings 3,500,000
Total Stockholders' Equity $11,400,000
Reverse Stock Split
Stock Split 2 3
Common stock 600,000 shares $1.50 par $900,000
Paid-in-Capital 7,000,000
Retained Earnings 3,500,000
Total Stockholders' Equity $11,400,000
Analysis of Initiating a Cash Discount




for Eboy Corporation
Increase in units due to discount 50
Selling price @net 30 $4,200
Variable Cost Per Unit $2,600
Additional Profit Contribution from Sales: $80,000
Cost of Marginal Investment in AccCounts Receivable
Variable cost per unit $2,600
Raw Material annual usage 1450
Accounts Receivable $443,000
Sales $3,544,000
Days 365
Collection Period 45.625
AR Turnover 8.0
Average investment presently (w/o discounts) $471,250
Variable cost per unit $2,600.00
Raw Material annual usage 1500
Expected AR Turnover due to discount 12.0
Average investment presently (with cash discounts) $325,000
Reduction in accounts receivable investment $146,250
Opportunity cost of funds 12.5%
Cost Savings from reduced investment in AR $18,281
Cash Discount term 2.00%
Percentage of customers to take discount 70%
Raw Material annual usage (new) 1500
Selling price per unit $4,200
Cost of Cash Discount $88,200
Net Profit from initiation of proposed cash discount $10,081





MODULE 8





Details:
Complete your 2,500-word (excluding tables, figures, and addenda) financial analysis of your chosen company selected in Module 2.
Following the nine-step assessment process introduced below and detailed in Assessing a Company’s Future Financial Health:
  1. Analysis of fundamentals: goals, strategy, market, competitive technology, and regulatory and operating characteristics.
  2. Analysis of fundamentals: revenue outlook.
  3. Investments to support the business unit(s) strategy(ies).
  4. Future profitability and competitive performance.
  5. Future external financing needs.
  6. Access to target sources of external finance.
  7. Viability of the 3-5-year plan.
  8. Stress test under scenarios of adversity.
  9. Current financing plan.
As you conduct the analysis, you will compile research on your chosen company, including analyst reports and market information. Disclose all assumptions made in the case study (e.g., revenue growth projections, expense controls) and provide supporting reasons and evidence behind those assumptions.
Finally, in order to assess the long-term financial health of the chosen company, synthesize the research data and outcomes of the nine-step assessment process.
Prepare this assignment according to the APA guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a grading rubric. Instructors will be using the rubric to grade the assignment; therefore, students should review the rubric prior to beginning the assignment to become familiar with the assignment criteria and expectations for successful completion of the assignment.


 

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