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Financial Management Case study tutoring

  • On the first day of your summer internship, you’ve been assigned to work with the Chief Financial Officer (CFO) of SanBlas Jewels Inc. Not knowing how well trained you are, the CFO has decided to test your understanding of interest rates. Specifically, she asked you to provide a reasonable estimate of the nominal interest rate for a new issue of Aaa-rated bonds to be offered by SanBlas Jewels Inc. The final format that the chief financial officer of SanBlas Jewels has requested is that of equation (2-1) in the text. Your assignment also requires that you consult the data in Table 2-2. Some agreed-upon procedures related to generating estimates for key variables in equation (2-1) follow.

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a. The current 3-month Treasury bill rate is 2.96 percent, the 30-year Treasury bond rate is

5.43 percent, the 30-year Aaa-rated corporate bond rate is 6.71 percent, and the inflation

rate is 2.33 percent.

 

b. The real risk-free rate of interest is the difference between the calculated average yield on

3-month Treasury bills and the inflation rate.

 

c. The default-risk premium is estimated by the difference between the average yield on Aaarated bonds and 30-year Treasury bonds.

 

d. The maturity premium is estimated by the difference between the average yield on 30-year

Treasury bonds and 3-month Treasury bills.

 

e. SanBlas Jewels’ bonds will be traded on the New York Bond Exchange, so the liquidity premium will be slight. It will be greater than zero, however, because the secondary market for

the firm’s bonds is more uncertain than that of some other jewel sellers. It is estimated at 4

basis points. A basis point is one one-hundredth of 1 percent. Now place your output into the format of equation (2-1) so that the nominal interest rate can be estimated and the size of each variable can also be inspected for reasonableness and discussion with the CFO.

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Equation 2.1

 

nominal interest rate = real risk-free interest rate

 

+ inflation-risk premium

+ default-risk premium

+ maturity premium

+ liquidity premium

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  • On the first day of your summer internship, you’ve been assigned to work with the Chief Financial Officer (CFO) of SanBlas Jewels Inc. Not knowing how well trained you are, the CFO has decided to test your understanding of interest rates. Specifically, she asked you to provide a reasonable estimate of the nominal interest rate for a new issue of Aaa-rated bonds to be offered by SanBlas Jewels Inc. The final format that the chief financial officer of SanBlas Jewels has requested is that of equation (2-1) in the text. Your assignment also requires that you consult the data in Table 2-2. Some agreed-upon procedures related to generating estimates for key variables in equation (2-1) follow.

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a. The current 3-month Treasury bill rate is 2.96 percent, the 30-year Treasury bond rate is

5.43 percent, the 30-year Aaa-rated corporate bond rate is 6.71 percent, and the inflation

rate is 2.33 percent.

 

b. The real risk-free rate of interest is the difference between the calculated average yield on

3-month Treasury bills and the inflation rate.

 

c. The default-risk premium is estimated by the difference between the average yield on Aaarated bonds and 30-year Treasury bonds.

 

d. The maturity premium is estimated by the difference between the average yield on 30-year

Treasury bonds and 3-month Treasury bills.

 

e. SanBlas Jewels’ bonds will be traded on the New York Bond Exchange, so the liquidity premium will be slight. It will be greater than zero, however, because the secondary market for

the firm’s bonds is more uncertain than that of some other jewel sellers. It is estimated at 4

basis points. A basis point is one one-hundredth of 1 percent. Now place your output into the format of equation (2-1) so that the nominal interest rate can be estimated and the size of each variable can also be inspected for reasonableness and discussion with the CFO.

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Equation 2.1

 

nominal interest rate = real risk-free interest rate

 

+ inflation-risk premium

+ default-risk premium

+ maturity premium

+ liquidity premium

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assume newely apponitied as finance executive in amanufacturing firm what guidelines you will to follow in financial planning



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Herbicide Ltd manufactures
insecticide which is marketed in one and two litre bottles. The existing
machinery owned by the company for the bottling of its product has now reached
the end of its useful life, and the management of the company is deciding what
equipment should be purchased to replace it. It is not necessary to replace the
ancillary machinery which includes conveyor belts, washing and inspection
machinery and other equipment.

Machines Under
Consideration

The
new bottle filling and capping machines being considered are:

1. The ‘Bottle-Snap’.

2. The ‘Seal’.

3. The ‘Zip Cap’.

4. The ‘Screw-Top’.

The ‘Bottle-Snap’ is an improved
version of the existing equipment to be retired. This machine has a nominal
capacity of 370 bottles per minute (bpm) for one litre bottles, or 125 bpm for
two litre bottles.

The ‘Seal’ is a similar machine to the above, except that it has a much
larger capacity. Its nominal capacity is 600one litre bpm or 280two litre bpm.

The ‘Zip-Cap’ uses tear-off caps
and operates at a maximum (nominal) rate of 350 one litre bpm. This machine could
be used to fill and seal two litre bottles, but with a greatly reduced
production rate.

The ‘Screw-Top’ can be used to reseal bottles after the initial opening.
The nominal capacity of this machine is 200 two litre bpm. This machine could
be used to fill and seal one litre bottles.

Departmental managers have determined the following average production
capacities based on the preceding nominal (maximum) capacities of each machine.

Marketing Considerations

Management considers that either the ‘Crown’ or ‘Zip-Cap’ could be used
for sealing the one litre bottles. ‘Screw-Tops’ are believed to be uneconomical
for small bottles. Either ‘Crown’ or Screw-Top’s’ are considered suitable for
the two litre bottles. Zip-Caps are thought to be unsuitable for two litre
bottles.

The demand for pesticides is very seasonal and sales are highest during
the summer months. Because of the large amount of storage space required in
relation to value, it is uneconomical to build up large stocks during the
cooler months for sale during periods of peak demand. It is therefore necessary to employ labour at
penalty rates for evening and weekend shift work during periods of peak demand.

Sales

The present annual sales volume of the company is approximately
1,600,000 24-bottle crates of one litre bottles, and 1,400,000 12-bottle crates
of two litre bottles.

The current selling price per crate for the company’s insecticides is as
follows:

·
$1.20 per 24-bottle crate
of one litre bottles

·
$1.60 per 12-bottle
crate of two litre bottles

The additional costs involved in the production of two litre ‘Screw-Top’
bottles would require a selling price of $1.75 per 12-bottle crate if this type
of bottle were to be marketed.

Conventional or New Seals

The
final choice has been narrowed down to five alternative proposals which are set
out in Exhibit 1.

EXHIBIT 1

Identification of
Alternatives

The four types of equipment being considered could be combined in five
different ways to achieve the desired production capacities.

ALTERNATIVE A

This alternative would involve the acquisition of two ‘Bottle-Snap’
machines, one to be used to fill and seal one litre bottles and the used to
fill and seal two litre bottles. The use
of two such machines has the advantage of flexibility (the one litre machine
could be modified to produce two litre bottles and vice versa).

ALTERNATIVE B

One ‘Seal’ could be used to produce both one litre and two litre
bottles. A change in the size of bottles
processed, however, requires an extensive changeover of parts, taking
approximately four hours. If this machine were installed, batch production and
the holding of larger inventories of finished products would be required.

ALTERNATIVE C

A ‘Zip-Cap’ machine could be used for the production of one litre
bottles, and a ‘Bottle-Snap’ for two litre bottles. The latter could be used to
produce one litre bottles if required.

ALTERNATIVE D

The one litre
bottles could be processed using a ‘Bottle-Snap’ while the two litre bottles
could be produced with a ‘Scru-Top’. The former could be used to produce two
litre ‘Seal’ bottles if required.

ALTERNATIVE E

The final alternative is to produce one litre bottles using a ‘Zip-Cap’
and the two litre bottles using a ‘Scru-Top’.

Financial and Operating Data

The Accountant for the company has prepared a schedule showing the
initial costs of the alternative machines, together with expected operating
costs and other relevant data. This information is reproduced in Exhibit 2.

EXHIBIT 2

Identification
of Costs

Notes

a An initial investment allowance of 20
per cent is allowable for taxation purposes on the initial investment and
installation costs.

Depreciation, at the
rate of 20 per cent per annum (straight line), is allowable for tax purposes on
all three items of expenditure required for acquisition, installation and parts
inventory.

b.
Annual fixed operating
costs exclude depreciation.

c.
Variable operating costs
exclude taxation expenses. “Normal” variable operating costs per crate are
those estimated for production at normal rates of pay. “Penalty” variable
operating costs per crate are those estimated for production during periods
when penalty rates of pay apply (late shifts and weekends)

The Production Manager has prepared estimates of the total annual
production hours required to meet expected sales for each of the five
alternative proposals. These estimates are based on the expected average rate
of production per hour, and separate ‘normal’ production hours from ‘penalty’
production hours. The Production Manager’s estimates are reproduced in Exhibit
3.

EXHIBIT 3

Production
Hour Estimates

The
company uses the net present value method in its capital budgeting decisions.
The after tax required rate of return is 10%. Income tax rates for simplicity
are 50%. Assume that any taxation implications occur at the time of the
relevant cash flow or in the case of depreciation, in the year of the
depreciation claim. Assume also that all cash flows take place at the end of
each period and that inflation is zero.

Required

1)Show the cash flows for each alternative proposal listed in Exhibit 1.

2)Compute the Net Present Value, Payback Period and the Internal Rates of
Return for each alternative.

3)On the basis of your analysis in question 2, which of the alternatives
would you recommend?

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APT, Inc needs $8 million now and $4 million in
four years. Packaging firm with high growth rate in tri-state area. Common stock trades over the counter.
Stock is depressed but should rise in year to 18 months. Willing to accept any type of security. Good
management. Expects moderate growth. New machinery should increase profits substantially. Recently
retired $7 million in debt. Has virtually no debt remaining except short-term obligations.



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2-1 A company’s financial statements consist of the balance sheet, income statement and statement of cash flows.
a.Describe the nature of the balance sheet and income statement.
b.Why have we not used the conventional statement of cash flows in our presentation, computing instead what we call free cash flows?
2-2 What are differences among gross profits, operating profits and net income?
2-3 What is the difference between dividend and interest expense?



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Hi, I need help with my assignment in Financial Management. Can you help me?1.The
last dividend paid by Klein Company was $1.00. Klein’s growth rate is
expected to be a constant 5% for two years, after which dividends are
expected to grow at a rate of 10% forever. Klein’s required rate of
return on equity (ks) is 12%. What is the current price of Klein’s
common stock?2.The Satellite Building Company has fallen on hard
times. Its management expects to pay no dividends for the next two
years. However, the dividend for Year 3, D3, will be $1.00 per share,
and the dividend is expected to grow at a rate of 3% in Year 4, 6% in
Year 5, and 10% in Year 6 and thereafter. If the required return for
Satellite is 20%, what is the current equilibrium price of the stock? 3.DAA’s
stock is selling for $15 per share. The firm’s income, assets, and
stock price have been growing at an annual 15% rate and are expected to
continue to grow at this rate for three more years. No dividends have
been declared as yet, but the firm intends to declare a dividend of D3 =
$2.00 at the end of the last year of its supernormal growth. After
that, dividends are expected to grow at the firm’s normal growth rate of
6%. The firm’s required rate of return is 18%. Do you think, the stock
is overvalued, undervalued, or priced just right?4.You are
considering an investment in the common stock of Cowher Corp. The stock
is expected to pay a dividend of $2 per share at the end of the year
(i.e., 1 = $2.0 ). The stock has a beta equal to 1.2. The risk-free rate
is 6%. The market risk premium is 5%. The stock’s dividend is expected
to grow at some constant rage, g. The stock currently sells for $40 a
share. Assuming the market is in equilibrium, what does the market
believe the stock price will be at the end of three years? (In other
words, what is P3?)5.Suppose you are willing to pay $30 today
for a share of stock that you expect to sell at the end of one year for
$32. If you require an annual rate of return of 12%, what must be the
amount of the annual dividend which you expect to receive at the end of
Year 1?You can use Microsoft Excel or Word to complete this assignment. Submit it as an attachment.




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1.1. At Wal-Mart, in the hardware department, a customer buys five gallons of paint and six brushes and pays $97.52 for them, including 6% sales tax. Another person buys eight gallons of paint and five brushes and pays $146.28, including the sales tax. Find the price of a gallon of paint and that of a brush.Suppose the paint sells for $x per gallon and the brushes are $y each. The total for the first customer is 5x + 6y. Adding 6% sales tax, then it becomes 1.06(5x + 6y). The total is $97.52. Thus, we get the equation1.06(5x + 6y) = 97.52Likewise, the equation for the second customer is1.

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1.1. At Wal-Mart, in the hardware department, a customer buys five gallons of paint and six brushes and pays $97.52 for them, including 6% sales tax. Another person buys eight gallons of paint and five brushes and pays $146.28, including the sales tax. Find the price of a gallon of paint and that of a brush.Suppose the paint sells for $x per gallon and the brushes are $y each. The total for the first customer is 5x + 6y. Adding 6% sales tax, then it becomes 1.06(5x + 6y). The total is $97.52. Thus, we get the equation1.06(5x + 6y) = 97.52Likewise, the equation for the second customer is1.06(8x + 5y) = 146.28To solve the equations, go to http://www.wolframalpha.com/WolframAlpha and write the following instruction1.06*(5*x+6*y)=97.52,1.06*(8*x+5*y)=146.28The result comes out as x = 16. and y = 2. Thus paint is $16 per gallon and brushes are $2 each. ?1.2. The cash flows from two projects under different states of the economy are as follows:State of the economyProbabilityProject AProject BPoor20%$3000$0Average30%$4000$7000Good50%$6000$15,000Calculate the following:(A) Expected cash flows for the two projects $4800, $9600 ?(B) Standard deviation of the cash flows $1249, $5919.46 ?(C) Coefficient of correlation between the two projects .9901 ?1.3. Paris Corporation has borrowed $1 million from Marseille National Bank with the understanding that it will pay $19,332.80 a month, until the loan is paid off. The bank will charge 6% per annum interest on the unpaid balance, calculated monthly. Paris will make the payments at the end of each month. Find the following:(A) How long will it take Paris to pay off the loan? 60 months ?(B) What is the balance of the loan after 24 months? $674,533.90 ?1.4. Nicolas Sarkozy would like to accumulate five million dollars for his retirement. He has another 15 years before retirement. Lyon National Bank, where he intends to keep the money, will pay interest monthly at the annual rate of 6%. How much money should Nicolas deposit at the…

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????? ???? ???? corens ??? ???? ?? ????? ????? ??????? ????? ???? ?????? 12?000 ????? ?? ?????? ???????? ????? ????? ????? 9%. ??? ???? ?????? 1?500 ????? ?? ?????? ???? ?????? ??? ???? ???? ???? ?????? ????? ??????



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A company wants to raise $10 million in equity at an expected offering price of $20 per share. Its investment banker will receive $1.50 for
each share sold and incur expenses of $1 million. How many shares must be sold for the company to receive $10 million. Round to the nearest
whole number.
a. $450,000
b. $540,541
c. $594,595
d. $500,000
e. None of the above


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My assignment was not completed….I recieved it Sunday and it was due SUnday…..at the bottom of the Excel worksheet there is a tab B and C



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Question
1
. (5 marks)

Brown Ltd operates outdoor amusement
centres in a number of country towns. The company has decided to build another
centre that is expected to generate a permanent increase in EBIT of $100,000
pa. Current EBIT is $350,000. Brown currently has a capital structure that
utilises bonds, ordinary equity and preference shares. The $200,000 of issued
bonds pay 8% pa. Preference shares pay an annual fixed dividend of $150,000.
Currently 250,000 ordinary shares have been issued and are trading at $2 per
share. The company pays tax at 30%.

a)Brown
needs to raise $500,000 to construct the new amusement centre. Assuming the
company can issue new shares at the current market price, what is the impact on
EPS if new shares are issued to fund the centre?

b)If
new debt can be raised at a 10% interest rate, what is the impact on EPS of
using debt rather than a new equity issue?

Brown Ltd depends on mainly on sunny
weather to generate its expected EBIT. Using the information above together
with the two following scenarios calculate the impact of the debt and equity
financing alternatives if:

a)Weather
is good which will increase attendances and increase EBIT to $600,000

b)Weather
is poor which will decrease attendances and reduce EBIT to $320,000

c)Calculate
the indifference point


Question
2
. (10 marks)

You are considering the following two
stocks for your portfolio and have observed the following.

The risk free rate is 0.04 and you are
considering investing 60% of your funds in Stock A and 40% in Stock B.

Calculate the following.

a)Expected
Return of Stock A (.25 mark)

b)Expected
Return of Stock B (.25 mark)

c)Standard
Deviation of Stock A (.5 mark)

d)Standard
Deviation of Stock B (.5 mark)

e)Coefficient
of Variation of Stock A (.25 mark)

f)Coefficient
of Variation of Stock B (.25 mark)

g)Covariance
of Stocks A and B (.5 mark)

h)Correlation
Coefficient of Stocks A and B (.5 mark)

i)
Portfolio Return (.25 mark)

j)
Portfolio Standard Deviation and
Variance (1.25 mark)

k)Weights
of the Minimum Variance Portfolio (1.25 marks)

l)
Proof that these weights lead to the
Minimum Variance Portfolio (1 mark)

m)Weights
of the Optimal Risky Portfolio with a risk-free asset (1 mark)

n)Proof
that these weights lead to the Optimal Risky Portfolio (1.25 marks)

o)Discussion
on what you would do with this portfolio (1 mark)



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the below table dpicts the statistics of a firm and its sales requirements.compute DOL according to the values given in the table

sales in units 2000
Sales revenue Rs. 20000
Variable cost 10000
contribution 6000
fixed cost 0
EBIT 6000


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Topics:Captital Budgeting, Dividends, Spot and forward rates, spot and hedge position, weighted average per earnings.

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UNIVERSITY OF THE WEST INDIES OPEN CAMPUS MGMT 3048 – FINANCIAL MANAGEMENT II Graded Assignment Semester 1 2013/2014 INSTRUCTIONS TO STUDENTS: 1. This is an individual assignment and you are required to answer 5 questions as assigned below. Students with first names beginning between letters A and K are required to do questions 1, 3, 5, 7 and 9 Students with first names beginning between letters L and Z are required to do questions 2, 4, 6, 8 and 10. 2. The assignment will be worth 10 percent of your course work marks; however the assignment will be marked out of a total of 35 marks. 3. You are to upload your completed assignment to the assignment forum on the course page by the due date of November 15th, 2013, 3:30 pm ECT. 4. Your assignment should be accompanied by a signed copy of the Student Accountability Statement.
1. XYZ has no debt financing and has a value of $45 million and EBIT of $14.5 million. The firm is planning to change its capital structure by issuing $20 million in debt, and repurchasing $25 million of common stock. The firm is estimated to pay 8 percent on interest expense. a) According to the MM view of corporate taxes, what is the value of the levered firm in millions of dollars if the company’s tax rate is 30 percent? (2 marks) b) What is XYX’s cost of equity before the change in capital structure? (3 marks) c) What will be cost of equity of XYZ under the new capital structure? (3 marks) d) What will be the new firm’s WACC? (2 marks) 2. Firm U is an all equity firm and has a market value of $500,000 and EBIT of $100,000. Firm L is identical in all respects to Firm U, but Firm L has $200,000 market value of debt outstanding and $400,000 worth of stock. Firm L pays total annual interest of $16,000 on his debt and has a tax rate of 40 percent. Both firms satisfy the MM assumptions. a. What is the value of firm L according to MM’s proposition 1 with corporate taxes? (2 marks) b. Micky is the holder of $30,000 worth of L’s stock. What rate of…

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Your group is involved in the start up of a new business. The exact nature of the business is left to the group to decide but must be a new venture that will not require an unreasonable level of funding.
You are required to produce a comprehensive financial plan for this business which and:
a) Clearly outline the aims and objectives of the business, indicate what the unique selling point of the enterprise is and the legal form (company or partnership).
b) Indicate the level of funding required and what form that funding will take.
c) Detail the main costs of the products or services provided and establish the break even point for those products or services including a sensitivity analysis. You must indicate how you have arrived at the price of your product or service.
d) Produce a detailed monthly cash flow for the first three years of the business.
e) Provide an investment appraisal for a capital purchase (machinery, transport, or buildings) that may need to be made for the business at the end of year 3.
f) Produce annual budgeted income statements, balance sheets and cash flow statements for the first three years of the business. Showing a range of financial ratios from year to year so that an analysis of the business may be made.
This data will be complied into a 2000 word report (tables and financial statements are not included in the word count).



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Funman Power Ltd. Is engaged in the expansion of its
production capacity which is expected to increase the operating profits from
20% to 25%. The proposal requires additional fund of Rs. 1,00,00,000 for which
different alternatives of raising funds are being evaluated. These are:

Option I

Option II

Option III

Option IV

14%
Pref. Sh. Capital

Rs.
20,00,000

Rs.
20,00,000

—–

Rs.
10,00,000

Equity
Share Capital

40,00,000

20,00,000

20,00,000

50,00,000

14%
partly Conv. Debenture

—–

—–

30,00,000

—–

16%
Debenture

—–

20,00,000

—–

40,00,000

20%
Term Loan

—–

40,00,000

50,00,000

—–

22%
Term Loan

40,00,000

—–

—–

1,00,00,000

1,00,00,000

1,00,00,000

1,00,00,000

Additional Information:

(i)
The
company belongs to 30% tax bracket

(ii)
The
50% of the partly convertible debentures are to be converted
into Equity Share capital at par at the end of 4th year.

Evaluate different
options of raising the required funds in view of the fact that the firm wants
to maximize the dividends to the shareholders (100% payment ratio) and the
period of 3 years is considered sufficient for capital structure division.

1.
ABC
Turbines ltd is currently producing 2000 units per month. It is contemplating
to increase the monthly production to 4000 units by working an extra shift in
such a way that work started in the first shift will continue in the extra
shift. A quantity discount of 10% on all purchases of raw material is expected
from the supplier. The selling price, Variable cost and fixed cost would remain
the same. Following is the income statement for current year

Income
Statement

Sales(24,000*18)

4,32,000

Less:

Raw Material (24,000*Rs 6)

1,44,000

Wages

Variable(24,000*3)

72,000

Fixed

48,000

Overheads

Variable(24,000*1)

24,000

Fixed

96000

3,84,000

Profit

48,000

Other Information:

a)
The
credit period allowed to customer is 3 months and would remain the same

b)
The
lag period for payment of suppliers would remain the same at 2 months

c)
Wages
and overheads are paid with a lag of half a month and would be same

d)
Finished
goods stocks at present is maintained at 4500 units. Raw material holding
period is 3 months.

e)
The
work in progress period id one months and is valued at the prime cost

You are required to prepare the
income statement for next year after the increase in monthly production is
introduced. Also find out the working capital requirement both at present and
for next year



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“Yesterday BrandMart Supplies paid its common stockholders a dividend equal to $3 per share. BrandMart expects to pay a $5 per share one year from today. After the
$5 dividend is paid, the company expects its growth rate will remain constant at 4 percent per year forever. If BrandMart’s investors demand a 12 percent rate of
return, what should be the current market price of the company’s stock?”



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Your investment club has only two stocks in its portfolio. 20,000 is invested in a stock with a beta of 0.7 and 35000 is invested in a stock with a beta of 13.
What is the portfolio’s beta?



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calculation of WACC NPV and IRR

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School of Business BUACC3701: Financial Management Semester 2 – 2012ASSIGNMENT This assignment is to be completed in groups of three and carries 30 percent of the marks in this unit. CASE STUDYSwallowit is a small Australian pharmaceutical company. It is not fully integrated with the dividend imputation system.As at 30th June 2012 it had prepared the following Balance SheetAssetsAccounts Receivable $ 125,000 Inventories $ 1,850,000 Property, Plant & Equipment $ 20,803,000 Prepayments $ 12,000 TOTAL ASSETS $ 22,790,000 LiabilitiesAccounts Payable $ 90,000 Bank Overdraft $ 1,000,000 Accrued Revenue $ 25,000 Debentures $ 4,800,000 TOTAL LIABILITIES $ 5,915,000 NET ASSETS $ 16,875,000 Shareholders EquityPreference Shares $ 2,000,000 Ordinary Shares $ 10,000,000 General Reserve $ 125,000 Retained Profit $ 4,750,000 TOTAL SHAREHOLDERS EQUITY $ 16,875,000 Notes The bank overdraft carries an annual percentage rate of 8% charged monthly.The debentures are currently trading at $309.29 each. Interest is paid half-yearly and they mature in 7 years time. They were originally issued with a face value of $300 with an annual coupon rate of 13.5%. Any new issues would incur flotation costs of $1.50 per debenture. The preference shares are currently trading at $8.10 each. They were originally issued in perpetuity at $8.00. Swallowit has just paid preference dividends totalling $275,000. Any new issues would incur flotation costs of $0.75 per share.Ordinary shares are currently trading at $1.75. There are currently 7,500,000 shares outstanding. Swallowit has just paid ordinary dividends totalling $1,125,000. Any new issues would incur flotation costs of $0.50 per share. Ordinary dividends over the preceding four years have been as follows2007-08$0.1189 per share2008-09$0.1276 per share2009-10$0.1373 per share2010-11$0.1462 per shareOrdinary dividends for 2011-12 have just been paidSwallowit has determined that the mix…

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Read the instructions carefully and complete all work in detail. I have uploaded the assignments and supporting materials. You can disregard the pdf.. There is no pdf..

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Week 3 Individual Assignment- Refer to Chapters 6 and 7 for materials to help you complete this assignment. Show step by step instructions on how you get to the answers in detail. The answers are provided to you for each question. You have to write in words and numbers step by step instructions on how exactly you get to the final answer which is highlighted for you.
3.1. Paris Company has made a portfolio of these three securities: 
Security
Cost
E(R)
s(R)
Treasury bond
$65,000
5%
0
Marseille Corporation
$60,000
13%
25%
Lyon Company
$35,000
17%
35%
 The correlation coefficient between Marseille and Lyon is 0.6. If the returns are normally distributed, find the probability that the return of the portfolio is more than 8%.56.83% ? 
3.2. Suppose you have $50,000 that you want to invest in two companies in the following table. Their correlation coefficient is 40%. Your portfolio should have a return of 13%. 
Security
Price/share
E(R)
s(R)
Toulouse Oil Company
$10
12%
25%
Nice Aluminum
$20
16%
32%
 (A) Approximately how many shares of stock of each company should you buy?Toulouse 3750 shares, Nice 625 shares ?
(B) What is the s of the portfolio?.2314 ?
3.3. Nantes Corporation’s common stock sells for $51.25 a share and its current annual dividend is $5. The ß of this stock is 1.3. It has shown 3% annual growth in dividends for many years. The current riskless rate is 4%. Today, the analysts downgraded the stock from ‘buy’ to ‘hold’. In response to the news, the stock dropped in price by $1.25. Assume that the stock will maintain the growth in dividends. 
(A) Find the new ß of the stock.1.336 ?
(B) Expected return of the market.10.96% ?
3.4. The Strasbourg Corp common stock has a ß of 1.55 and it will pay a dividend of $1.65 next year. The following table shows the various possible economic situations. 
State of the economy
Probability
Expected return of the market
Good
50%
15%
Fair
30%
10%
Poor
20%
-10%
 The current…



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The following items have been extracted from the liabilities side of the balance sheet of XYZ Company as on 31st December 2005.
Paid up capital: Rs.
4, 00,000 equity shares of Rs each 40, 00,000
Loans:
16% non-convertible debentures 20, 00,000
12% institutional loans 60, 00,000

Other information about the company as relevant is given below:
31st dec Dividend Earning average market price
Per share per share per share
2005 7.2 10.50 65
You are required to calculate the weighted average cost of capital, using book values as weights and earnings/price ratio as the basis of cost of equity. Assume19.2% tax rate



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Only 5 questions (excel spreadsheet attached to show work)

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4.5

5.5

-0.18181818181818182

20000

1.782

1.8540000000000001

-435.8580410360355

500

1.5

750

0.1

0.4

0.4

7

0.12

0
1
2
3
4
5

-10
4
4
6
6
5

-10
3.5714285714285712
3.1887755102040813
4.2706814868804654
3.813108470428987
2.8371342785929961

-10
3.214285714285714
2.8698979591836733
3.8436133381924189
3.4317976233860885
2.5534208507336964

5.9130154857815906

Chapter 17, Problem 2
Spot Shekel Rate
180-day Forward Rate (shekels per dollar)
Estimated Premium (+) or Discount (-)
Chapter 17, Problem 3
Spot Rate in 90 Days
Price of Glassware in Francs
90-day Forward Rate
$ Amount Saved (+) or Lost (-) by Hedging
Chapter 17, Problem 4
Price in United States
Exchange Rate (Dollars to Francs)
Price of Product in Switzerland
Chapter 17, Problem 5
Percentage of Cash Flows Blocked by Government
Probability of Terminal Value of $2.0 mil.
Probability of Terminal Value of $8.0 mil.
Possible Terminal Value $
Cost of Capital plus 1% for Exchange Rate Risk
Terminal Value
Period
Cash Flows
Adjusted Cash Flows
Discounted Cash Flows
Flows After 20% Discount
NPV of Cash Flows
Chapter 17 Demonstration Problems



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internal rate of return and cost of capital

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School of Business BUACC3701: Financial Management Semester 2 – 2012ASSIGNMENT This assignment is to be completed in groups of three and carries 30 percent of the marks in this unit. CASE STUDYSwallowit is a small Australian pharmaceutical company. It is not fully integrated with the dividend imputation system.As at 30th June 2012 it had prepared the following Balance SheetAssetsAccounts Receivable $ 125,000 Inventories $ 1,850,000 Property, Plant & Equipment $ 20,803,000 Prepayments $ 12,000 TOTAL ASSETS $ 22,790,000 LiabilitiesAccounts Payable $ 90,000 Bank Overdraft $ 1,000,000 Accrued Revenue $ 25,000 Debentures $ 4,800,000 TOTAL LIABILITIES $ 5,915,000 NET ASSETS $ 16,875,000 Shareholders EquityPreference Shares $ 2,000,000 Ordinary Shares $ 10,000,000 General Reserve $ 125,000 Retained Profit $ 4,750,000 TOTAL SHAREHOLDERS EQUITY $ 16,875,000 Notes The bank overdraft carries an annual percentage rate of 8% charged monthly.The debentures are currently trading at $309.29 each. Interest is paid half-yearly and they mature in 7 years time. They were originally issued with a face value of $300 with an annual coupon rate of 13.5%. Any new issues would incur flotation costs of $1.50 per debenture. The preference shares are currently trading at $8.10 each. They were originally issued in perpetuity at $8.00. Swallowit has just paid preference dividends totalling $275,000. Any new issues would incur flotation costs of $0.75 per share.Ordinary shares are currently trading at $1.75. There are currently 7,500,000 shares outstanding. Swallowit has just paid ordinary dividends totalling $1,125,000. Any new issues would incur flotation costs of $0.50 per share. Ordinary dividends over the preceding four years have been as follows2007-08$0.1189 per share2008-09$0.1276 per share2009-10$0.1373 per share2010-11$0.1462 per shareOrdinary dividends for 2011-12 have just been paidSwallowit has determined that the mix…

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• Resource: http://www.annualreports.com/

• Follow the directions below to access the annual report for a company of your choice. It
may be, but does not have to be, the company for your final project.

1. Go to http://www.annualreports.com/
2. Enter your companyÂ’s name in the Search by Company Name field.
3. Click Search.
4. Click the hyperlink that appears with your companyÂ’s name.
5. Open the PDF or HTML version of the annual report.

Read the letter to shareholders from the CEO or chairman of the board.

• Evaluate the CEO’s letter, in 200 to 300 words. An effective annual report letter from
company leadership should include:

o An assessment of the firmÂ’s performance in the last year
o Both positive and negative developments
o Ideas for strategic planning for the future

• Answer the following question in your evaluation: What impressions does the letter give
you about the quality of the companyÂ’s financial leadership and planning?



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In the second assignment I would like you to write on the increase of interest rate within the past year and how it affects the households and businesses.

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Chapter 4 Mini-Case
The Behavior of Interest Rates
CONCEPTS IN THIS CASE
effect of interest-rate changes Fisher effect bond values expected return equation market equilibrium loanable funds framework asset market approach liquidity preference framework demand and supply curves
Your company is interested in analyzing the behavior of interest rates and the models used to predict interest rates in the future. As an initial project in this area, you have been assigned the task of creating a presentation that will show the top management team assigned this project the basics of what affects interest rates and how equilibrium prices change over time. The better your presentation to this group, the more likely you are to become a voting member of the team. To begin your work, you have decided to identify a series of questions that you think this team will ask, including tables and graphs that will satisfy their concerns about the final presentation to the CFO. You decide to start by answering the following questions, assuming that the face value of a discount bond is $1000 and the time to maturity is one year.
What is the expected return for this bond if the market price is
$800?
$850?
$900?
$950?
$1000?
If the market-clearing price (market equilibrium) of this bond has a return of 20% what is the market price where the quantity demanded equals the quantity supplied? (Hint: Use the same expected return equation, solve for P.)
Which factors would cause the demand curve for bonds to shift?
Which factors would cause the supply curve for bonds to shift?
Explain what the Fisher effect is and how it would be reflected in rising interest rates.
Explain the meaning and differences between the loanable funds framework and the liquidity preference framework in estimating the equilibrium interest rate. (Include the effects of changes in income, price levels, and expected inflation.)
Predict the supply and demand changes for bonds and money that usually…



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please do not post to website:1. When analyzing a company’s performance, what are some of the problems of relying on ratio analysis only?2. How does sinking fund provision impact the value of a bond?3. Does the combination of a high current ratio and low inventory turnover ratio necessarily indicate a healthy position?4. Is it possible for a firm to have positive beta even if the correlation between this firm and another firm is negative?



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School of BusinessBUACC3701: Financial Management Semester 2 – 2012ASSIGNMENT This assignment is to be completed in groups of three and carries 30 percent of the marks in this unit. CASE STUDYSwallowit is a small Australian pharmaceutical company. It is not fully integrated with the dividend imputation system.

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School of BusinessBUACC3701: Financial Management Semester 2 – 2012ASSIGNMENT This assignment is to be completed in groups of three and carries 30 percent of the marks in this unit. CASE STUDYSwallowit is a small Australian pharmaceutical company. It is not fully integrated with the dividend imputation system.As at 30thJune 2012 it had prepared the following Balance SheetAssetsAccounts Receivable $ 125,000 Inventories $ 1,850,000 Property, Plant & Equipment $ 20,803,000 Prepayments $ 12,000 TOTAL ASSETS $ 22,790,000 LiabilitiesAccounts Payable $ 90,000 Bank Overdraft $ 1,000,000 Accrued Revenue $ 25,000 Debentures $ 4,800,000 TOTAL LIABILITIES $ 5,915,000 NET ASSETS $ 16,875,000 Shareholders EquityPreference Shares $ 2,000,000 Ordinary Shares $ 10,000,000 General Reserve $ 125,000 Retained Profit $ 4,750,000 TOTAL SHAREHOLDERS EQUITY $ 16,875,000 Notes The bank overdraft carries an annual percentage rate of 8% charged monthly.The debentures are currently trading at $309.29 each. Interest is paid half-yearly and they mature in 7 years time. They were originally issued with a face value of $300 with an annual coupon rate of 13.5%. Any new issues would incur flotation costs of $1.50 per debenture.The preference shares are currently trading at $8.10 each. They were originally issued in perpetuity at $8.00. Swallowit has just paid preference dividends totalling $275,000. Any new issues would incur flotation costs of $0.75 per share.Ordinary shares are currently trading at $1.75. There are currently 7,500,000 shares outstanding. Swallowit has just paid ordinary dividends totalling $1,125,000. Any new issues would incur flotation costs of $0.50 per share. Ordinary dividends over the preceding four years have been as follows2007-08$0.1189 per share2008-09$0.1276 per share2009-10$0.1373 per share2010-11$0.1462 per shareOrdinary dividends for 2011-12 have just been paidSwallowit has determined that the mix of debt,…

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the amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called



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FINC210 Financial Management
Assignment 3
Deadline: April 7, 2011
(Submit the assignment to PLG410)

Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for four years, after which it will face more competition and slip into a constant growth rate of 5%. Its required return is 14% and next year’s dividend is expected to be $5.00.

Calculate the present value of growth opportunities (PVGO) of the following company, assuming: next year’s expected earnings equal $5.

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FINC210 Financial Management
Assignment 3
Deadline: April 7, 2011
(Submit the assignment to PLG410)

Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for four years, after which it will face more competition and slip into a constant growth rate of 5%. Its required return is 14% and next year’s dividend is expected to be $5.00.

Calculate the present value of growth opportunities (PVGO) of the following company, assuming: next year’s expected earnings equal $5.00, 13% required rate of return, 17% return on equity, and 45% plowback ratio.

“It’s competition for information that makes securities markets efficient.” Is this statement correct? Explain.

Mr. Cyrus Clops, the president of Giant Co., has to make a choice between two possible investments:

Cash flows ($ thousands) Project C0 C1 C2 IRR (%) A -400 +250 +300 23 B -200 +140 +179 36 Calculate the IRR of Project A and Project B.
According to the IRR rule, which project should be chosen?
According to the NPV rule, which project should be taken? Assume a 9% cost of capital.

Econo-cool air conditioners cost $300 to purchase, result in electricity bills of $150 per year, and last for 5 years. Luxury Air models cost $500, result in electricity bills of $100 per year, and last for 8 years. The discount rate is 21%.
What are the equivalent annual costs of the Econo-cool and Luxury Air models?
Which model is more cost effective?

Econo-cool air conditioners cost $300 to purchase, result in electricity bills of $150 per year, and last for 5 years. Luxury Air models cost $500, result in electricity bills of $100 per year, and last for 8 years. The discount rate is 21%.
What are the equivalent annual costs of the Econo-cool and Luxury Air models?
Which model is more cost effective?

ected to be $5.00.

Calculate the present value of growth opportunities (PVGO) of the following company, assuming: next year’s expected…

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Date & Time of Test: 7:15- 8:45 // Time Zone with City Name eastern time Miami// Number of Questions 35// Nature of Questions (MCQ / Subjective / Short Answer) Multiple choice, true or false and problem solving// Number of Attempts 1//
Time Range in will test will remain open (Are we free to take test any time) from 7:15pm to 8:45//Duration of Test (Total Time to complete Test) 1 hour and 30 minutes //Nature of Answers (if floating digits then up to how many decimal places if numeral)round to 2 decimal places
Name the topic of Test /Quiz / Assignment: Financial management//Do you have any Sample Questions/Lecture Notes/reference Material? marginal taxes, corporate taxes, earnings per share, depreciation, added market value liquidity ratios, asset management ratios, detb management ratios etc.//Phone Number with Country Code 3052900097



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Kym Bkaer had a HECS liability of $ 12500 at the end of the year in which he finished his degree. The HECS debt accumulates at the raye to the inflation rate, which was 1.25% per annum over the first year after he graduated and 0.35% for the following year. At the end of the second year after graduation Kym’s annual taxable income has increased to $29000 and he is required by the tax office to pay an amount equivalent to 1% annual taxable income to reduce his HESC debt.
How much HECS does Kym owe at the end of the second year after graduation after making payment for that year to the tax Office?
Draw appropriate timelines to demonstrate your calculations.



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This assignment is to be completed in groups of three and carries 30 percent of the marks in this unit.

Question 1. (5 marks)

Brown Ltd operates outdoor amusement centres in a number of country towns. The company has decided to build another centre that is expected to generate a permanent increase in EBIT of $100,000 pa. Current EBIT is $350,000. Brown currently has a capital structure that utilises bonds, ordinary equity and preference shares. The $200,000 of issued bonds pay 8% pa. Preference shares pay an annual fixed dividend of $150,000. Currently 250,000 ordinary shares have been issued and are trading at $2 per share. The company pays tax at 30%.

a)Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

b)If new debt can be raised at a 10% interest rate, what is the impact on EPS of using debt rather than a new equity issue?

Brown Ltd depends on mainly on sunny weather to generate its expected EBIT. Using the information above together with the two following scenarios calculate the impact of the debt and equity financing alternatives if:

a)Weather is good which will increase attendances and increase EBIT to $600,000

b)Weather is poor which will decrease attendances and reduce EBIT to $320,000

c)Calculate the indifference point


Question 2. (10 marks)

You are considering the following two stocks for your portfolio and have observed the following.

The risk free rate is 0.04 and you are considering investing 60% of your funds in Stock A and 40% in Stock B.

Calculate the following.

a)Expected Return of Stock A (.25 mark)

b)Expected Return of Stock B (.25 mark)

c)Standard Deviation of Stock A (.5 mark)

d)Standard Deviation of Stock B (.5 mark)

e)Coefficient of Variation of Stock A (.25 mark)

f)Coefficient of Variation of Stock B (.25 mark)

g)Covariance of Stocks A and B (.5 mark)

h)Correlation Coefficient of Stocks A and B (.5 mark)

i)Portfolio Return (.25 mark)

j)Portfolio Standard Deviation and Variance (1.25 mark)

k)Weights of the Minimum Variance Portfolio (1.25 marks)

l)Proof that these weights lead to the Minimum Variance Portfolio (1 mark)

m)Weights of the Optimal Risky Portfolio with a risk-free asset (1 mark)

n)Proof that these weights lead to the Optimal Risky Portfolio (1.25 marks)

o)Discussion on what you would do with this portfolio (1 mark)


Question 3. (15 marks)

Herbicide Ltd manufactures insecticide which is marketed in one and two litre bottles. The existing machinery owned by the company for the bottling of its product has now reached the end of its useful life, and the management of the company is deciding what equipment should be purchased to replace it. It is not necessary to replace the ancillary machinery which includes conveyor belts, washing and inspection machinery and other equipment.

Machines Under Consideration

The new bottle filling and capping machines being considered are:

1.The ‘Bottle-Snap’.

2.The ‘Seal’.

3.The ‘Zip Cap’.

4.The ‘Screw-Top’.

The ‘Bottle-Snap’ is an improved version of the existing equipment to be retired. This machine has a nominal capacity of 370 bottles per minute (bpm) for one litre bottles, or 125 bpm for two litre bottles.

The ‘Seal’ is a similar machine to the above, except that it has a much larger capacity. Its nominal capacity is 600one litre bpm or 280two litre bpm.

The ‘Zip-Cap’ uses tear-off caps and operates at a maximum (nominal) rate of 350 one litre bpm. This machine could be used to fill and seal two litre bottles, but with a greatly reduced production rate.

The ‘Screw-Top’ can be used to reseal bottles after the initial opening. The nominal capacity of this machine is 200 two litre bpm. This machine could be used to fill and seal one litre bottles.

Departmental managers have determined the following average production capacities based on the preceding nominal (maximum) capacities of each machine.


Marketing Considerations

Management considers that either the ‘Crown’ or ‘Zip-Cap’ could be used for sealing the one litre bottles. ‘Screw-Tops’ are believed to be uneconomical for small bottles. Either ‘Crown’ or Screw-Top’s’ are considered suitable for the two litre bottles. Zip-Caps are thought to be unsuitable for two litre bottles.

The demand for pesticides is very seasonal and sales are highest during the summer months. Because of the large amount of storage space required in relation to value, it is uneconomical to build up large stocks during the cooler months for sale during periods of peak demand.It is therefore necessary to employ labour at penalty rates for evening and weekend shift work during periods of peak demand.

Sales

The present annual sales volume of the company is approximately 1,600,000 24-bottle crates of one litre bottles, and 1,400,000 12-bottle crates of two litre bottles.

The current selling price per crate for the company’s insecticides is as follows:

·$1.20 per 24-bottle crate of one litre bottles

·$1.60 per 12-bottle crate of two litre bottles

The additional costs involved in the production of two litre ‘Screw-Top’ bottles would require a selling price of $1.75 per 12-bottle crate if this type of bottle were to be marketed.

Conventional or New Seals

The final choice has been narrowed down to five alternative proposals which are set out in Exhibit 1.

EXHIBIT 1

Identification of Alternatives

The four types of equipment being considered could be combined in five different ways to achieve the desired production capacities.

ALTERNATIVEA

This alternative would involve the acquisition of two ‘Bottle-Snap’ machines, one to be used to fill and seal one litre bottles and the used to fill and seal two litre bottles.The use of two such machines has the advantage of flexibility (the one litre machine could be modified to produce two litre bottles and vice versa).

ALTERNATIVEB

One ‘Seal’ could be used to produce both one litre and two litre bottles.A change in the size of bottles processed, however, requires an extensive changeover of parts, taking approximately four hours. If this machine were installed, batch production and the holding of larger inventories of finished products would be required.

ALTERNATIVEC

A ‘Zip-Cap’ machine could be used for the production of one litre bottles, and a ‘Bottle-Snap’ for two litre bottles. The latter could be used to produce one litre bottles if required.

ALTERNATIVED

The one litre bottles could be processed using a ‘Bottle-Snap’ while the two litre bottles could be produced with a ‘Scru-Top’. The former could be used to produce two litre ‘Seal’ bottles if required.

ALTERNATIVEE

The final alternative is to produce one litre bottles using a ‘Zip-Cap’ and the two litre bottles using a ‘Scru-Top’.

Financial and Operating Data

The Accountant for the company has prepared a schedule showing the initial costs of the alternative machines, together with expected operating costs and other relevant data. This information is reproduced in Exhibit 2.

EXHIBIT 2

Identification of Costs

Notes

aAn initial investment allowance of 20 per cent is allowable for taxation purposes on the initial investment and installation costs.

Depreciation, at the rate of 20 per cent per annum (straight line), is allowable for tax purposes on all three items of expenditure required for acquisition, installation and parts inventory.

b.Annual fixed operating costs exclude depreciation.

c.Variable operating costs exclude taxation expenses. “Normal” variable operating costs per crate are those estimated for production at normal rates of pay. “Penalty” variable operating costs per crate are those estimated for production during periods when penalty rates of pay apply (late shifts and weekends)

The Production Manager has prepared estimates of the total annual production hours required to meet expected sales for each of the five alternative proposals. These estimates are based on the expected average rate of production per hour, and separate ‘normal’ production hours from ‘penalty’ production hours. The Production Manager’s estimates are reproduced in Exhibit 3.

EXHIBIT 3

Production Hour Estimates

The company uses the net present value method in its capital budgeting decisions. The after tax required rate of return is 10%. Income tax rates for simplicity are 50%. Assume that any taxation implications occur at the time of the relevant cash flow or in the case of depreciation, in the year of the depreciation claim. Assume also that all cash flows take place at the end of each period and that inflation is zero.

Required

1)Show the cash flows for each alternative proposal listed in Exhibit 1.

2)Compute the Net Present Value, Payback Period and the Internal Rates of Return for each alternative.

3)On the basis of your analysis in question 2, which of the alternatives would you recommend?



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Arrange the following items in proper balance sheet presentation.

Accumulated depreciation $200,000
Retained earnings 110,000
Cash 5,000
Bonds payable 142,000
Accounts receivable 38,000
Plant and equipment-original cost 720,000
Accounts payable 35,000
Allowance for bad debts 6,000
Common stock $1 par, 150,00…



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A firm is evaluating two mutually exclusive projects that
have unequal lives. The firm must evaluate the projects using the annualized
net present value approach and recommend which project they should select. The
firm’s cost of capital has been determined to be 18 percent, and the projects
have the following initial investments and cash flows:



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Read uploaded requirement documents and complete the assignments in detail. I would rather have the same expert who completed TTs110313_35969_54 complete this assignment. However, if you have another expert who specializes in this area of expertise then that is ok also!

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Week 5 Discussion – Write 1 page for each question in detail and provide any references that you use. If you use any references they can only be internet links easy to access. Also, refer to the Chapter 9 doc uploaded.
Question 1: When you determine the cost of equity and cost of debt for a firm, which one can be found with greater accuracy? Why is that so?
Question 2: Why do we have to calculate the WACC of a company? Does it have any practical applications?



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A proposal to extend the ABC Gas Company Ltd’s gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC’s existing transmission line, is under the consideration of its CEO, Prerna Goyal. the NOIDA industrial cluster is dominated by the textiles industry including texturising, weaving ,spinning and yarn units with over 2,500 small and medium size units. The potential of gas consumption in these industries is mainly on account of captive power. Power constitutes 40 -65 percent of the production cost in the key target sectors for gas supply. The units in the cluster have been considering reduction of power costs by moving away from the expensive grid supply to captive power generation. The total estimated potential of captive power presently is 45 MW which corresponds to 0.30 million standard cubic meters per day (MSCMD) of gas. The proposed project is essentially an extension of the distribution network in the existing Delhi distribution zone.

A market survey of potential customer to assess the gas demand potential in the region has identified over 40 customers with a combined gas demand of 0.25 MSCMD for captive power. Negotiation for gas supply has also been initiated with them. ABC Gas Ltd has received expression of interest for over 0.075 MSCMD. However, timing of gas supply is the key since alternative fuel option such as solid and liquid fuels and wind energy are available. The expression of interest would fall through if gas is not supplied by mid 2008.

Amit Kumar, an engineer consultant, is hired by Prerna Goyal to identify the most feasible and economical route for laying down the gas pipeline. A preliminary site survey is followed by reconnaissance survey by Amit. After conducting Quantified Risk Assessment and evaluating several pipeline options, the consultant has proposed a 12 inch, 150 class low pressure (19 bar) pipeline for a total length of 30 kms from the ABC’s transmission pipeline. The capacity of the proposed pipeline will be 0.75 MSCMD.

The base investment/capital expenditure is estimated to be Rs 24 crore consisting of the following heads:

i) Engineering Rs 0.50 crore

ii) Project clearance Rs 1.2 crore

iii) Material costs Rs 13.2 crore

iv) Contacts Rs 7.7 crore

v) Commissioning Rs 0.10 crore and

vi) Contingency and insurance Rs 1.3 crore.

The pipe line has an expected life of 10 years.

The other parameters of the projects have been identified by the consultant as listed below

1) Volumes build up (in MSCMD)

YEAR

VOLUME

YEAR

VOLUME

1

0.075

6

0.121

2

0.083

7

0.133

3

0.091

8

0.146

4

0.100

9

0.161

5

0.11

10

0.177

2) Sales price of Gas, Rs 8.90 per standard cubic meter (SCM) with an increase of 3% every year.

3) Purchase price of Gas Rs. 7 per SCM with an increase of 3 % every year.

4) Variable costs are assume to be constant throughout the 10 year life of the pipeline @ Rs. 28 lakhs per annum (Consisting of pigging of pipeline, Rs. 20 lakhs ; cathodic protection of pipeline, Rs. 2 lakh, supervision cost, Rs. 3 lakh; pipeline surveys Rs. 2 lakh; and electricity charges Rs. 1 lakh).

Assuming a straight line method of depreciation of material cost of initial capital investment for tax purposes and 12% required rate of return, analyze as a financial consultant, the financial viability of the proposal and make a recommendation to the CEO of the ABC Gas Limited.



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In 1983 the Japanese yen-U.S. dollar exchange rate was 245 yen per dollar, and the dollar cost of a compact Japanese-manufactured car was $8,000. suppose that
now the exchange rate is 80 yen per dollar. assume there has been no inflation in the yen cost of an automobile so that all price changes are due to exchange
rate changes. what would the dollar price of the car be now, assuming the car’s price changes only with exchange rates?



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Amity Campus
Uttar Pradesh
India 201303

ASSIGNMENTS
PROGRAM: MBA IB
SEMESTER-II
Subject Name : Study COUNTRY : Roll Number (Reg.No.) : Student Name :
INSTRUCTIONS
Students are required to submit all three assignment sets.

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Amity Campus
Uttar Pradesh
India 201303

ASSIGNMENTS
PROGRAM: MBA IB
SEMESTER-II
Subject Name : Study COUNTRY : Roll Number (Reg.No.) : Student Name :
INSTRUCTIONS
Students are required to submit all three assignment sets.

ASSIGNMENT DETAILS MARKS Assignment A Five Subjective Questions 10 Assignment B Three Subjective Questions + Case Study 10 Assignment C Objective or one line Questions 10
Total weightage given to these assignments is 30%. OR 30 Marks
All assignments are to be completed as typed in word/pdf.
All questions are required to be attempted.
All the three assignments are to be completed by due dates and need to be submitted for evaluation by Amity University.
The students have to attaché a scan signature in the form.

Signature : _________________________________
Date : _________________________________

( v ) Tick mark in front of the assignments submitted
Assignment ‘A’ Assignment ‘B’ Assignment ‘C’ International Financial Management
Assignment – A

Ques 1. What is the need of International Financial Management? List out the difference between domestic Finance & International Finance.

Ques 2. i) An investor has two options to choose from: a) $ 7000 after 1 year b)$ 10000 after 3years.Assuming the discount rate of 9% which alternative he should opt for?
ii) A person would need USD 5000, 6 years from now. How much should he deposit each year in his bank account, if yearly interest rate is 10 %?

Ques3. Zain corporation ltd is trying to decide on replacement decision of its current manually operated machine with a fully automatic version. The existing machine was purchased ten years ago. It has a book value of $ 140000 and remaining life of 10 years salvage value $40000. The machine has recently begun causing problems with breakdown and…

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KIWICO is a New Zealand-based company with 25% holding by overseas investors. It has recently completed a $200,000, two-year study on its latest project. It estimated that 20,000 of its new geothermal heat pump could be sold annually over the next ten years at a price of $8,521 each. Subcontractors …



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1.
Explain why
the present value of a cash flow stream, and the asset associated therewith;
fluctuate in value with the level of interest rates in the capital markets.

2.List and explain the points of financial impact on a
company if it raises the credit standards required of its customers who
utilized trade credit offered by the company.

3.

Define Weighted Average Cost of Capital and explain
why a company must earn at least its Weighted Average Cost of Capital on new
investments.What are the financial
implications if it does not?



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A proposal to extend the ABC Gas Company Ltd’s gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC’s existing transmission line, is under the consideration of its CEO, Prerna Goyal. the NOIDA industrial cluster is dominated by the textiles industry including texturising, weaving ,spinning and yarn units with over 2,500 small and medium size units. The potential of gas consumption in these industries is mainly on account of captive power. Power constitutes 40 -65 percent of the production cost in the key target sectors for gas supply. The units in the cluster have been considering reduction of power costs by moving away from the expensive grid supply to captive power generation. The total estimated potential of captive power presently is 45 MW which corresponds to 0.30 million standard cubic meters per day (MSCMD) of gas. The proposed project is essentially an extension of the distribution network in the existing Delhi distribution zone.

A market survey of potential customer to assess the gas demand potential in the region has identified over 40 customers with a combined gas demand of 0.25 MSCMD for captive power. Negotiation for gas supply has also been initiated with them. ABC Gas Ltd has received expression of interest for over 0.075 MSCMD. However, timing of gas supply is the key since alternative fuel option such as solid and liquid fuels and wind energy are available. The expression of interest would fall through if gas is not supplied by mid 2008.

Amit Kumar, an engineer consultant, is hired by Prerna Goyal to identify the most feasible and economical route for laying down the gas pipeline. A preliminary site survey is followed by reconnaissance survey by Amit. After conducting Quantified Risk Assessment and evaluating several pipeline options, the consultant has proposed a 12 inch, 150 class low pressure (19 bar) pipeline for a total length of 30 kms from the ABC’s transmission pipeline. The capacity of the proposed pipeline will be 0.75 MSCMD.

The base investment/capital expenditure is estimated to be Rs 24 crore consisting of the following heads:

i) Engineering Rs 0.50 crore

ii) Project clearance Rs 1.2 crore

iii) Material costs Rs 13.2 crore

iv) Contacts Rs 7.7 crore

v) Commissioning Rs 0.10 crore and

vi) Contingency and insurance Rs 1.3 crore.

The pipe line has an expected life of 10 years.

The other parameters of the projects have been identified by the consultant as listed below

1) Volumes build up (in MSCMD)

YEAR

VOLUME

YEAR

VOLUME

1

0.075

6

0.121

2

0.083

7

0.133

3

0.091

8

0.146

4

0.100

9

0.161

5

0.11

10

0.177

2) Sales price of Gas, Rs 8.90 per standard cubic meter (SCM) with an increase of 3% every year.

3) Purchase price of Gas Rs. 7 per SCM with an increase of 3 % every year.

4) Variable costs are assume to be constant throughout the 10 year life of the pipeline @ Rs. 28 lakhs per annum (Consisting of pigging of pipeline, Rs. 20 lakhs ; cathodic protection of pipeline, Rs. 2 lakh, supervision cost, Rs. 3 lakh; pipeline surveys Rs. 2 lakh; and electricity charges Rs. 1 lakh).

Assuming a straight line method of depreciation of material cost of initial capital investment for tax purposes and 12% required rate of return, analyze as a financial consultant, the financial viability of the proposal and make a recommendation to the



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the assighnment is as follows;
1.what are the factors which govern intra-corporate transfer of funds?
2.what necessiates the exporter to look for credit?
Each assignment answer may be provided in 500 words only, a few examples be also be quoted andalso linkand refereces be intimated.
The standard of reply has to be of financial graduate level.
time limit would be 30 hours.
the problem relates to Financial management MBA standard

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the assighnment is as follows;
1.what are the factors which govern intra-corporate transfer of funds?
2.what necessiates the exporter to look for credit?
Each  assignment answer may be provided in 500 words only, a few examples be also be quoted andalso linkand refereces be intimated.
The standard of reply has to be of financial graduate level.
time limit would be 30 hours.
the problem relates to Financial management MBA standard
 
the assighnment is as follows;
1.what are the factors which govern intra-corporate transfer of funds?
2.what necessiates the exporter to look for credit?
Each  assignment answer may be provided in 500 words only, a few examples be also be quoted andalso linkand refereces be intimated.
The standard of reply has to be of financial graduate level.
time limit would be 30 hours.
the problem relates to Financial management MBA standard

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Start with the partial model in the file Ch20 P06 Build a Model.xls. on the textbook’s Web site. Schumman Shoe Manufacturer is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold years ago. Its amortizing $4.5 million floatation costs on the 10% bond over the issue’s 30-year life. Shaumman’s investment bankers have indicated that the companycould sell a new 22-year issue at an interest rate of 8% in today’s market . Neither they or Schumann’s management anticipate that interest rate will fall below 6 percent anytime soon, but there is a chance that interest rates will increase.

A. Perform a complete bond refunding analysis. What is the bond refunding’s NPV?

B. At what interest rate on the new debt is the NPV of the refunding no longer positive?

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70000000

0.1

30

22

4500000

0.1

0.4

0.08

22

5000000

1

0.05

Par value
Coupon rate
Tax rate
Call premium
a. Perform a complete bond refunding analysis. What is the bond refunding’s NPV?
You get to expense the remaining flotation costs
This is interest paid on the old bond issue between when the new bonds are issued and the old bonds are retired
This is interest earned on the proceeds from the new bonds before they are used to pay off the old bonds.
Initial investment outlay to refund old issue:
Annual Flotation Cost Tax Effects:
Annual interest savings due to refunding:
“Break-even” interest rate =
NPV of refunding decision =
Annual cash flows =
Net after tax interest savings =
Annual after tax interest on new bond =
Annual after tax interest on old bond =
Annual tax savings on new flotation =
Tax savings lost on old flotation =
Total amortization tax effects =
Call premium on old issue =
After-tax call premium =
New flotation cost =
Old flotation costs already expensed =
Remaining flotation costs to expense =
Tax savings from old flotation costs =
Additional interest on old issue after tax =
Interest earned on investment in T-bonds after tax =
Total investment outlay =
Time between issuing new bonds and calling old bonds (months)
Rate earned on proceeds of new bonds before calling old bonds (annual)
After-tax cost of new debt =
A call premium of 10 percent would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Schumann’s marginal federal-plus-state tax rate is 40 percent. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 5 percent annually during the interim period.
Coupon rate
Original maturity
Remaining maturity
Original flotation costs
Current bond issue data
Maturity
Flotation costs
Refunding data
Use Goal Seek to set cell D60 to zero by changing cell C27.
Schumann Shoe Manufacturer…

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Complete the Individual Assignment according to requirement in detail in word format and excel. Refer to the Chapter 8 uploaded document for assistance in completing the answers. Also, provide step by step instructions on how you got to each answer.

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Week 4 Discussion – Black-Scholes Option Pricing Model / Put-call Parity Theorem:
Question 1: What is the Black-Scholes option pricing model?
Question 2: What is the put-call parity theorem?



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This assignment is to be completed in groups of three and carries 30 percent of the marks in this unit.

Question 1. (5 marks)

Brown Ltd operates outdoor amusement centres in a number of country towns. The company has decided to build another centre that is expected to generate a permanent increase in EBIT of $100,000 pa. Current EBIT is $350,000. Brown currently has a capital structure that utilises bonds, ordinary equity and preference shares. The $200,000 of issued bonds pay 8% pa. Preference shares pay an annual fixed dividend of $150,000. Currently 250,000 ordinary shares have been issued and are trading at $2 per share. The company pays tax at 30%.

a) Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

b) If new debt can be raised at a 10% interest rate, what is the impact on EPS of using debt rather than a new equity issue?

Brown Ltd depends on mainly on sunny weather to generate its expected EBIT. Using the information above together with the two following scenarios calculate the impact of the debt and equity financing alternatives if:

a) Weather is good which will increase attendances and increase EBIT to $600,000

b) Weather is poor which will decrease attendances and reduce EBIT to $320,000

c) Calculate the indifference point

Question 2. (10 marks)

You are considering the following two stocks for your portfolio and have observed the following.

The risk free rate is 0.04 and you are considering investing 60% of your funds in Stock A and 40% in Stock B.

Calculate the following.

a) Expected Return of Stock A (.25 mark)

b) Expected Return of Stock B (.25 mark)

c) Standard Deviation of Stock A (.5 mark)

d) Standard Deviation of Stock B (.5 mark)

e) Coefficient of Variation of Stock A (.25 mark)

f) Coefficient of Variation of Stock B (.25 mark)

g) Covariance of Stocks A and B (.5 mark)

h) Correlation Coefficient of Stocks A and B (.5 mark)

i) Portfolio Return (.25 mark)

j) Portfolio Standard Deviation and Variance (1.25 mark)

k) Weights of the Minimum Variance Portfolio (1.25 marks)

l) Proof that these weights lead to the Minimum Variance Portfolio (1 mark)

m) Weights of the Optimal Risky Portfolio with a risk-free asset (1 mark)

n) Proof that these weights lead to the Optimal Risky Portfolio (1.25 marks)

o) Discussion on what you would do with this portfolio (1 mark)

Question 3. (15 marks)

Herbicide Ltd manufactures insecticide which is marketed in one and two litre bottles. The existing machinery owned by the company for the bottling of its product has now reached the end of its useful life, and the management of the company is deciding what equipment should be purchased to replace it. It is not necessary to replace the ancillary machinery which includes conveyor belts, washing and inspection machinery and other equipment.

Machines Under Consideration

The new bottle filling and capping machines being considered are:

1. The ‘Bottle-Snap’.

2. The ‘Seal’.

3. The ‘Zip Cap’.

4. The ‘Screw-Top’.

The ‘Bottle-Snap’ is an improved version of the existing equipment to be retired. This machine has a nominal capacity of 370 bottles per minute (bpm) for one litre bottles, or 125 bpm for two litre bottles.

The ‘Seal’ is a similar machine to the above, except that it has a much larger capacity. Its nominal capacity is 600 one litre bpm or 280 two litre bpm.

The ‘Zip-Cap’ uses tear-off caps and operates at a maximum (nominal) rate of 350 one litre bpm. This machine could be used to fill and seal two litre bottles, but with a greatly reduced production rate.

The ‘Screw-Top’ can be used to reseal bottles after the initial opening. The nominal capacity of this machine is 200 two litre bpm. This machine could be used to fill and seal one litre bottles.

Departmental managers have determined the following average production capacities based on the preceding nominal (maximum) capacities of each machine.


Marketing Considerations

Management considers that either the ‘Crown’ or ‘Zip-Cap’ could be used for sealing the one litre bottles. ‘Screw-Tops’ are believed to be uneconomical for small bottles. Either ‘Crown’ or Screw-Top’s’ are considered suitable for the two litre bottles. Zip-Caps are thought to be unsuitable for two litre bottles.

The demand for pesticides is very seasonal and sales are highest during the summer months. Because of the large amount of storage space required in relation to value, it is uneconomical to build up large stocks during the cooler months for sale during periods of peak demand. It is therefore necessary to employ labour at penalty rates for evening and weekend shift work during periods of peak demand.

Sales

The present annual sales volume of the company is approximately 1,600,000 24-bottle crates of one litre bottles, and 1,400,000 12-bottle crates of two litre bottles.

The current selling price per crate for the company’s insecticides is as follows:

· $1.20 per 24-bottle crate of one litre bottles

· $1.60 per 12-bottle crate of two litre bottles

The additional costs involved in the production of two litre ‘Screw-Top’ bottles would require a selling price of $1.75 per 12-bottle crate if this type of bottle were to be marketed.

Conventional or New Seals

The final choice has been narrowed down to five alternative proposals which are set out in Exhibit 1.

EXHIBIT 1

Identification of Alternatives

The four types of equipment being considered could be combined in five different ways to achieve the desired production capacities.

ALTERNATIVE A

This alternative would involve the acquisition of two ‘Bottle-Snap’ machines, one to be used to fill and seal one litre bottles and the used to fill and seal two litre bottles. The use of two such machines has the advantage of flexibility (the one litre machine could be modified to produce two litre bottles and vice versa).

ALTERNATIVE B

One ‘Seal’ could be used to produce both one litre and two litre bottles. A change in the size of bottles processed, however, requires an extensive changeover of parts, taking approximately four hours. If this machine were installed, batch production and the holding of larger inventories of finished products would be required.

ALTERNATIVE C

A ‘Zip-Cap’ machine could be used for the production of one litre bottles, and a ‘Bottle-Snap’ for two litre bottles. The latter could be used to produce one litre bottles if required.

ALTERNATIVE D

The one litre bottles could be processed using a ‘Bottle-Snap’ while the two litre bottles could be produced with a ‘Scru-Top’. The former could be used to produce two litre ‘Seal’ bottles if required.

ALTERNATIVE E

The final alternative is to produce one litre bottles using a ‘Zip-Cap’ and the two litre bottles using a ‘Scru-Top’.

Financial and Operating Data

The Accountant for the company has prepared a schedule showing the initial costs of the alternative machines, together with expected operating costs and other relevant data. This information is reproduced in Exhibit 2.

EXHIBIT 2

Identification of Costs

Notes

a An initial investment allowance of 20 per cent is allowable for taxation purposes on the initial investment and installation costs.

Depreciation, at the rate of 20 per cent per annum (straight line), is allowable for tax purposes on all three items of expenditure required for acquisition, installation and parts inventory.

b. Annual fixed operating costs exclude depreciation.

c. Variable operating costs exclude taxation expenses. “Normal” variable operating costs per crate are those estimated for production at normal rates of pay. “Penalty” variable operating costs per crate are those estimated for production during periods when penalty rates of pay apply (late shifts and weekends)

The Production Manager has prepared estimates of the total annual production hours required to meet expected sales for each of the five alternative proposals. These estimates are based on the expected average rate of production per hour, and separate ‘normal’ production hours from ‘penalty’ production hours. The Production Manager’s estimates are reproduced in Exhibit 3.

EXHIBIT 3

Production Hour Estimates

The company uses the net present value method in its capital budgeting decisions. The after tax required rate of return is 10%. Income tax rates for simplicity are 50%. Assume that any taxation implications occur at the time of the relevant cash flow or in the case of depreciation, in the year of the depreciation claim. Assume also that all cash flows take place at the end of each period and that inflation is zero.

Required

1) Show the cash flows for each alternative proposal listed in Exhibit 1.

2) Compute the Net Present Value, Payback Period and the Internal Rates of Return for each alternative.

3) On the basis of your analysis in question 2, which of the alternatives would you recommend?



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DO NOT POST ON WEBSITE

Risk and Return

1.Given the
following information, compute the standard deviation for Investment A:

Payoff

Probability

20%

0.5

10%

0.4

-10%

0.1

2.Based on the
information given below, which of the investments would be considered best
based on its risk and return relationship? Assume all investors are risk-averse
and the investments will be held in isolation, not in a portfolio.

D

E

F

Expected return,

10.0%

18.0%

18.0%

Standard deviation,

7.0%

12.0%

20.0%

3.Consider the following
information, and then calculate the required rate of return for the Scientific
Investment Fund. The total investment in the fund is $2 million. The market
required rate of return is 15 percent, and the risk-free rate is 7 percent.

Stock

Investment

Beta

A

$200,000

1.50

B

300,000

-0.50

C

500,000

1.25

D

1,000,000

0.75

4.Moerdyk Company’s stock has a beta of 1.40,
the risk-free rate is4.25%, and the market risk premium is5.50%.What is the firm’s required rate of return?

5.Explain briefly: total risk, diversifiable
risk and market risk and why are these concepts important?



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I WANT TO SOLVE THE WHOLE QUESTION PAPER

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Examination Paper Semester I: Financial Management IIBM Institute of Business Management IIBM Institute of Business Management Semester-1 Examination Paper MM.100 Financial Management Section A: Objective Type (30 marks) 路 This section consists of multiple choice & Short Notes. 路 Answer all the questions. 路 Part One carries 1 mark each & Part two carries 5 marks each. Part one: Multiple choices: 1. The approach focused mainly on the financial problems of corporate enterprise a. Ignored non-corporate enterprise b. Ignored working capital financing c. External approach d. Ignored routine problems 2. These are those shares, which can be redeemed or repaid to the holders after a lapse of the stipulated period a. Cumulative preference shares b. Non-cumulative preference shares c. Redeemable preference shares d. Perpetual shares 3. This type of risk arise from changes in environmental regulations, zoning requirements, fees, licenses and most frequently taxes a. Political risk b. Domestic risk c. International risk d. Industry risk 4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal a. Future cost b. Specific cost c. Spot cost d. Book cost 5. This concept is helpful in formulating a sound & economical capital structure for a firm a. Financial performance appraisal b. Investment evaluation c. Designing optimal corporate capital structure d. None Examination Paper Semester I: Financial Management IIBM Institute of Business Management 6. It is the minimum required rate of return needed to justify the use of capital a. From investors b. Firms point c. Capital expenditure point d. Cost of capital 7. It arises when there is a conflict of interest among owners, debenture holders and the management a. Seasonal variation b. Degree of competition c. Industry life cycle d. Agency costs 8. Some guidelines on shares & debentures issued by the government that are very important for the constitution of the capital structure are…

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The financial data given below shows the capital of Mwiyo Company Ltd.
10% sh. 1,000 debenture 4,900,000
Ordinary share capital (Sh 20) 18,000,000
Retained earnings 6,000,000
28,900,000
The structure is considered optimum and the management would wish to maintain this level.
Mwiyo Company Limited intends to invest in a new project which is estimated to cost sh 16,800,000 with an expected net cash flow of sh 3,000,000 per annum for 10 years. The management has proposed to raise the required funds through the following means;
1. Issue 100 10% debenture at current market value of sh 5,000 per debenture
2. Utilize 60% of the existing retained earnings
3. Issue 10% sh 20 preference shares at the current market price of sh 25 per share
4. Issue ordinary shares at the current market price of sh 45 per share. Floatation cost per share is estimated to be 12% of the share value.
The company’s current dividend yield is 5% which is expected to continue in the near future.
Corporation tax rate is 30%
Required
a) Determine the current dividend per share
b) Determine the number of ordinary shares to be issued
c) Determine the marginal cost of capital for Mwiyo Company Ltd based on the above information
d) Evaluate whether it is viable to invest in the proposed project (Round off your answer for cost of capital to the nearest 1)
e) Explain clearly the sense in which depreciation is said to be a source of funds to business



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Please pick 4 out of the 5 questions and provide solution. Word count is not applicable just complete answer.

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1.What is the rational for wealth maximization as a goal for a firm? 2. What are the key financial statements and why they are important? 3. What is the purpose of ratio analysis? 4. What is the concept of time value of money? 5. Why understanding of time value of money is important?

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You have just won the $50 million state lottery jackpot. You may take it as one lump sum or as 20 annual payments of $2.5 million. In the second situation, assume the discount rate is 7%.



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Microsoft issued bonds for the first time in 2009. Collect information
on its bonds: What are the coupon rates, are there are any special
provisions such as callability or convertibility, what is the maturity,
and what are the yields? Discuss why Microsoft issued these bonds
despite a large amount of cash holdings. Apple has not issued any bonds
to date. Can you compare this with Microsoft and discuss why?



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From a firm’s perspective, discuss how the following factors may affect the attractiveness of leasing as compared with other financing arrangements:

i.) Corporate tax rate

ii.) Inflation

iii.) Interest rates



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Problem 4-22
Ratio Analysis

Data for Barry Computer Co. and its industry averages follow.

Barry Computer Company:
Balance Sheet as of December 31, 2011 (In Thousands)
Cash $100,800 Accounts payable $100,800
Receivables 201,600 Notes payable 57,600
Inventories 144,000 Other current liabilities 64,800
Total current assets $446,400 Total current liabilities $223,200
Long-term debt $144,000
Net fixed assets 273,600 Common equity 352,800
Total assets $720,000 Total liabilities and equity $720,000

Barry Computer Company:
Income Statement for Year Ended December 31, 2011 (In Thousands)
Sales $1,000,000
Cost of goods sold
Materials $410,000
Labor 220,000
Heat, light, and power 40,000
Indirect labor 110,000
Depreciation 30,000 $810,000
Gross profit $190,000
Selling expenses 50,000
General and administrative expenses 10,000
Earnings before interest and taxes (EBIT) $130,000
Interest expense 17,280
Earnings before taxes (EBT) 112,720
Federal and state income taxes (40%) 45,088
Net income $67,632

  1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.
    Ratio Barry Industry Average
    Current x 1.90x
    Quick x 1.29x
    Days sales outstandinga days 35.04days
    Inventory turnover x 7.44x
    Total assets turnover x 1.62x
    Net profit margin % 6.44%
    ROA % 10.44%
    ROE % 21.30%
    Total debt/total assets % 50.98%

    aCalculation is based on a 365-day year.

  2. Construct the extended Du Pont equation for both Barry and the industry. Round your answers to two decimal places.
    FIRM INDUSTRY
    Net profit margin % 6.44%
    Total assets turnover x 1.62x
    Equity multiplier


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rama and co.ltd.is considering expanding asssets by 15 lakhs and has decided that it can finance the expansion either through a bond issue carrying a 10% interest rate or through a new issue of common stock which can be sold to net the company rs 30 per share .the company currently has 800000 shares of stock outstanding and rs 15 lakh of bondswith an 8%coupon rate. tax rate is 50%, calculate eps for each alternative at ebit levels of rs 3 lakh,rs 6 lakh, and rs 9 lakh



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Explain the different ways in which ratio can be classified and which basis of classification you find superior and why.



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Figure 6.1 Bond Par($) Annual Coupon Interest Rate(%) Years to Maturity Required Return (%) L 1000 9 5 6 M 100 10 8 10 N 500 18 17 15 1. a) Calculate the current
value of Bond L, M, and N. (see figure 6.1) b) What will happen to the value/price as the bond approached maturity? Answer this for each bond.



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Please take a look at my first Homework Assignment for Financial Management. There are 10 questions, some of which in essay form. Please take a look at the questions and let me know if you feel confident answering (please show all work in Excel and Word).
Since there will be several homeworks I need help on, and multiple courses, I was thinking of offering $25 for this first one.
Require correct work on time.
Due: 24 hours

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1. Which of the following statements is CORRECT?

a. A firm with a sinking fund that gives it the choice of calling the required bonds at par or buying the bonds in the open market would generally choose the open market purchase if the coupon rate exceeded the going interest rate.
b. One disadvantage o…



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Advanced Thermal Ltd is proposing the construction of a new plant in Thailand. It has recently
completed a $100,000, two-year study on its latest project. It estimated that 20,000 of its new
geothermal heat pump could be sold annually over the next eight years at a price of $9,000 each.
Subcontractors would install the pump at a cost of $7,200 per installation. Fixed costs of $12 million
per annum will be incurred.

The initial outlay includes $80 million to build production facilities and $3 million in land. The $80
million facility will be depreciated usingthe prime cost method over the project’s life (fully
depreciated at the end of the project). At the conclusion of the project the facilities (including the
land) will be sold for an estimated value of $10 million.

The firm is an ongoing profitable business and pays taxes at a 30% rate in the year of income. It uses
a 15% discount rate on the new project. Using the NPV approach, determine whether the project
should be undertaken (use the relevant tax rate in your analysis).



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We will look at the use of stock in personal financial investments. You will evaluate the choices in purchasing stock via online brokerage accounts (where you can buy and sell stock via the Internet) and the use of dividend reinvestment plans (known as DIPs and DRIPs) or mutual funds or index funds. For online brokers, you will be looking for the requirements to open the accounts: costs, minimum balances, and other features. Because most DIPs or DRIPs are available from publicly traded companies, you can search their Web sites or a search engine on these plans and their requirements. Perhaps the most famous and useful Web site for these programs is http://www.directinvesting.com/. Finally, we want you to compare and contrast online brokerage to DIPs and DRIPs.
Research online trading sites and DRIPS as outlined below, and summarize your findings. Make sure to include a summary table of the relevant information.
1. Search three online trading sites, and determine the requirements for trading, including the price per trade. Compare and contrast the online trading companies. (2–3 pages)
2. Search the Web for three companies (look for investor information) that offer DIPs or DRIPs. (2–3 pages)
3. Compare and contrast the requirements, including minimum investments, nature of the return, costs, and other features. (1–2 pages)
Technical Requirements:
• Total pages: 5–8
• Double-space lines
• Use a 12-point font
• Use an APA style table to summarize each of the three parts above
• You must submit your backup in Excel or other supporting documentation showing how answers were reached



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6.You receive a credit card application from Shady Banks
Savings an introductory rate of 1.7 percent per year, compounded monthly for
the first six months, increasing thereafter to 15 percent compounded monthly.
Assuming you transfer the $5,000 balance from your existing credit card and
make no subsequent payments, how much interest will you owe at the end of the
first year?

7.Consider a bond with a face value of $1,000. The
coupon is paid semiannually and the market interest rate (YTM) is 12 percent.
How much would you pay for the bond if

a. the coupon rate is 8
percent and the remaining time to maturity is 20 years?

b. the coupon rate is 10
percent and the remaining time to maturity is 15 years?

8.The next dividend payment by Hot Wings
Incorporation will be $2.10 per share. The dividends are anticipated to
maintain a 5 percent growth rate forever. If the stock currently sells for $48
per share, what is the required return?

9. You are planning to save for retirement over
the next 30 years. To do this, you will invest $700 a month in a stock account
and $300 a month in a bond account. The return of the stock account is expected
to be 11 percent, and the bond account will pay 6 percent. When you retire, you
will combine your money into an account with a 9 percent return. How much can
you withdraw each month from your account assuming a 25-year withdrawal period?

10.A bond is sold at $923.14 (below its par value
of $1,000). The bond has 15 years to maturity and investors require a
10-percent yield on the bond. What is the coupon rate for the bond if the
coupon is paid semiannually?

11.
Metallica Bearings, Inc. is a young start-up company. No dividends will be paid
on the stock over the next nine years because the firm needs to plow back its
earning to fuel growth. The company will pay a $10 per share dividend in 10
years and will increase the dividend by 5% per thereafter. If the required
return on this stock is 14%, what is the current share price?

12.Plato
Company’s common stock is selling for $50. Last year’s dividend was $4.8 per
share. Compute the cost of retained earnings (or internal equity) if both
earnings and dividends are expected to grow at (a) zero percent and (b) a
constant rate of 9 percent.

13. Muffin Megabucks is considering two different
savings plans. The first plan would have her deposit $500 every six months, and
she would receive interest at a 7 percent annual rate, compounded semiannually.
Under the second plan she would deposit $1,000 every year with a rate of
interest of 7.5 percent, compounded annually. The initial deposit with Plan 1
would be made six months from now and, with Plan 2, one year hence.

a. What is the future value of the first plan at the
end of 10 years?

b. What is the future value of the second plan at the
end of 10 years?

c. Which plan should Muffin use, assuming that her
only concern is with the value of her savings at the end of 10 years?

d. Would your answer change if the rate of interest on
the second plan were 7 percent?

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The paper must be 12 paragraphs and use APA formatting.

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Assignment 2: Discussion Question
Using Question 3-5 in your textbook please prepare a 12 paragraph response ( 1200 words).
Respond to parts a, b, and c. Give examples to support your answers.
Explain the effect a decision to list a company’s stock on a physical stock exchange if the stock now trades in the over-the-counter market.
Detailed the effect a decision on a privately held company to go public.
Covered the importance of having institutions in the stock and bond markets.
Applied the correct APA style, usage, grammar, and punctuation.
3-5 Eagle Sports Products (ESP) is considering issuing debt to raise funds to
Finance its growth, during the next few years. The amount of the issue will be
Between $35 million and $40 million. ESP has already arranged for a local
investment banker to handle the debt issue.
The arrangement calls for ESP to pay flotation costs equal to 7 percent of the total market value of the issue.
A. Compute the flotation costs that ESP will have to pay if the market value
Of the debt issue is $39 million .
b. If the debt issue has a market value of $39 million. How much will ESP
Be able to use for its financing needs? That is what will be the net
proceeds from the issue for ESP?
Assume that the only costs associated with the issue are those paid to the investment banker.
c. If the company needs $39 million to finance its future growth, how much
debt must ESP issue?

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how do you figure out how many years it will take $1,000 in savings that gets 10% interest semi-annually to reach $2,653.30?



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1) Wellner Systems has the following balance sheet.How much net operating working capital (NOWC) does the firm have?Cash $ 300 Accounts payable $ 300Accounts receivable 650 Accruals 350Inventory 550 Notes payable 450Current assets $1,500 Current liabilities $ 1100Net fixed assets 1,000 Long-term debt 600Common equity 300Retained earnings 500Total assets $2,500 Total liab. & equity $2,5006) Ramco recently reported $30 million of sales, $15 million of operating costs and $3.00 million of depreciation. It had $9 million of bonds outstanding that carry a 5.0% interest rate, and its federal-plusstate income tax rate was 40%.What was Ramco’s operating income, or EBIT (a.k.a. “Operating income”), in millions?7) Barco recently reported $25,000 of sales, $7,250 of operating costs and $2,750 of depreciation. It had $10,000 of bonds outstanding that carry a 5.0% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm’s earnings before taxes (EBT)?

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PART C. (7.5 marks)

Traditional project evaluation/capital budgeting analysis assumes a firm s only choice is accept or reject a program. In a real business situation, firms face many choices with respect to how to operate a project, both before it starts and after it is underway. Any time a firm has the ability to make choices, there is value added to the project in question Traditional NPV analysis ignores this value. The study of real options attempts to put a dollar value on the ability to make choices.

a)

What are real options and how are they valued.

b)

Discuss the following

Locate the following article

IRREVERSIBILITY, UNCERTAINTY, AND INVESTMENT

(Robert S Pindyck Massachusetts Institute of Technology March 1990 old but gold)

Most major investment expenditures have two important characteristics which together can dramatically affect the decision to invest. First, the expenditures are largely irreversible; the firm cannot disinvest, so the expenditures must be viewed as sunk costs. Second, the investments can be delayed, giving the firm an opportunity to wait for new information about prices, costs, and other market conditions before it commits resources.

c)

Calculate the following

Pindyck supplies a simple two-period example to illustrate how irreversibility can affect an investment decision and how option pricing methods can be used to value a firm s investment opportunity, and determine whether or not the firm should invest.

Using the following example replicate Pyndick s two-period example.

Consider a firm’s decision to irreversibly invest in a widget factory. The factory can be built instantly, at a cost of $7m, and will produce 1000 widgets per year forever, with zero operating cost. Currently the price of widgets is $700, but next year the price will change. With probability .6it will rise to $800, and with probability (l-q) it will fall to $600. The price will then remain at this new level forever. Assume that this risk is fully diversifiable, so that the firm can discount future cash flows using the risk-free rate, which we will take to be 10 percent.

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You have been asked to write a report for a group of new stock brokers about the NYSE-Euronext and the NASDAQ.

Visit both the NYSE Homepage, and the NASDAQ Homepage, and write a paper of 2 3 pages on how the two exchanges operate. Make sure to address the following three questions:

  • How are NYSE and NASDAQ similar, if at all?
  • How are the two exchanges different from one another, if at all?
  • What is The Public Company Accounting and Investor Protection Act of 2002? Describe the law in your own words.

You may first want to create an outline to determine the information you want to include before you actually start writing the report.

Assignment Guidelines:

  • Using the links in the assignment description, research the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ).
  • Answer the 3 questions listed in the assignment description.
  • Compile your answers into a Word document of 2 3 pages.
  • Provide a list in APA format of all sources used and insert any necessary in-text quotations.

Your submitted assignment (125 points) must include the following:

  • A double-spaced Word document of 2 3 pages that contains your answers to the questions listed in the assignment description.
  • An additional reference page in APA format.



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Financial Management

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Please
answer the following questions in 2 pages, you can supplement your answers with
an article from the net but you need to
provide the reference, No plagiarism
everything needs to be in your own words.

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Instruction:
Please answer the following questions in 2 pages, you can supplement your answers with an article from the net but you need to provide the reference, No plagiarism everything needs to be in your own words.
Questions:
Return and risk are the two most important factors to consider when making investment decisions. They are positively related: in order to get higher returns (potential of higher returns), one needs to bear additional risks. However, there is no garanttee that you will have a higher return when taking on higher risk. We have discussed different methods that return and risk can be quantified. Below is the list of suggested topics for our discussion. Please feel free to extend to other related areas as we go along.
1. What is the difference between realized return and expected return? How each can be calculated? How to use these measures in personal investment decisions?
2. How can we compute risks on historical returns? How can we get risks for expected returns?
3. What is the relationship between risk and return historically? What implications does it have on your investment decisions?
4. Observe the stock market performance lately, what lessons can we learn? What’s your personal opinion on investing in today’s market?
5. Why corporate financial managers should be concerned about their company’s stock price performance?

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financial management

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details of required guidelines in enclosed file

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2008 2009 160000 180000 10000 14000 100000 130000 14000 96000 24000 120000 64000 60000 18000 24000 1000 1000 12000 31000 16000 41000 33000 19000 15000 6000 18000 13000 10000 7000 8000 6000 4000 12000 12000 18000 2008 2009 60000 60000 28000 88000 26000 86000 14000 24000 20000 60000 3000 37000 1000 85000 10000 62000 15000 6000 8000 33000 5000 73000 92000 98000 40000 40000 40000 40000 12000 18000 92000 98000 1 2 3 4 5 6 7 8 100000 100000 12/31/2011 20000 10000 12/31/2012 80000 40000 12/31/2013 40000 40000 12/31/2014 40000 12/31/2015 20000 1 2 3 4 5 Trading Profit & Loss Account Sales (all Credit) The following information relates to Gill Limited for the year Ended December 31st 2009 Less : Cost of Goods Sold Purchases Opening Stock Less: Closing Stock Gross Profit Less: Admin Expenses Loan Interest Net Profit Before Taxation Dividends : Taxation Selling and Distribution Net Profit After Taxation ÂŁ GILL LIMITED Balance Sheet as at December 31, 2009 Fixed Assets Free Hold Property Vehicles Current Assets Stocks Trade Debtors Bank Less: Current Liabilities Trade Cerditors Proposed Dividend Capital and Reserve Authorized & Issued Capital Preference Shares P& L Retained Profit brought forward from Previous Year Retained Profit for the Year Profit Carried Forward to Balance Sheet Required: Section : A a b Using the ratios which you have calculated in part (a) , comment on the results Section : B * ( ROCE , GP Ratio, Markup Ratio , Net Profit , Current ratio, Acid Test Ratio , Debtors & Creditors collection periods, EPS, P/e Ratio) for the year ended 2009. And advise management of Gill limited accordingly. Management of Gill Limited is not satisfied with the current financial position of the company . In order to achieve their targets they have advised Directors of Finance to produce budgets and With help of operational management they developed some targets for various departments. In their annual general meeting they agreed for a need to improve , in all…

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financial management

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it has been found that the value of the stock of corporations whose shares are traded publicy in an efficient marketplace



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financial Management

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As part of its international expansion program, Acme, a U.S. multinational enterprise (MNE), is currently in the planning stages of establishing a Greenfield (see text glossary for definition) production facility overseas.

You have been asked to present a proposal to the steering committee comparing the advantages and disadvantages of starting operations in one of two selected foreign countries.

The steering committee has determined that one alternative must be a member of the European Union (EU) while the other cannot be a member of the EU. Subject to these conditions, you may choose any two foreign countries, except China, India, Czech Republic, and Romania for comparison.

Deliverable: There are many factors to consider in your comparative analysis. Please be sure to include, among other topics, a discussion of the different countries’ currencies, trade policies and cultural variables that may affect operations and profitability in each country. Your report should conclude with a recommendation and supporting rationale as to which country should be selected for the new facility.

 

Deliverable Length: 3-5 pages



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