Question 1
Task: Deliverable Length: Word document of 700?1,000 words with attached Excel Spreadsheet showing calculations Key Assignment Draft Your next assignment as a financial management intern is to apply the knowledge that you acquired while engaging in the cost of capital discussion that you had with your colleagues. In this task, you will be calculating the weighted cost of capital for a firm using the book value of the components and the concepts presented in this phase. Using the most current annual financial statements from the company you analyzed in Phase 1, determine the percentage of the firm's assets that are currently be financed with debt (total liabilities), preferred stock, and common stock (common equity). It is very possible that your firm will have very little or no preferred stock, so in this class, the percent would be "zero." Your ratios should add up to 100%. You will also need to calculate the firm?s average tax rate using the income tax expense divided by the firm's income before taxes. Use the following tables: Please see table 1 A & B Company Total Assets Total Liabilities Total Preferred Stock Total Common Equity Dollar Value % of Assets Company Income before Tax Income Tax Expense Average Tax Rate (%) The first component to determine is the cost of debt. You mentor suggests using the Web site that you used in the previous Phase to find the pretax yield-to-maturity of a bond with at least 5 years left before maturity. Using the following table, calculate the firm's after-tax cost of debt: Please See Table 2 Yield to Maturity 1 - Average Tax Rate After-tax Cost of Debt Now you will need to calculate the cost of preferred stock. You can use the following table: Please See Table 3 Annual Dividend Current Value of Preferred Stock Cost of Preferred Stock (%) To calculate the cost of common equity, you can use the CAPM model. Using current stock data, the yield on the 5-year treasury bond, and the return on the market calculated in Phase 2, you can calculate the cost of common equity using the following table: Please See Table 4 5-year Treasury Bond Yield (risk-free rate) Stock's Beta Return on the Top 500 Stocks (market return) Cost of Common Equity Now, you can use the cost and ratios from above to calculate the firm's weighted average cost of capital (WACC) using the following table: Please See Table 5 After-Tax Cost of Debt Cost of Preferred Stock Cost of Common Equity WACC Unweighted Cost Weight of Component Weighted Cost of Component After completing the required calculations, explain your results in a Word document, and attach the spreadsheet showing your work. Be sure to explain the following: How would you expect the weighted average cost of capital (WACC) to differ if you had used market values of equity rather than the book value of equity, and why? What would you expect would happen to the cost of equity if you had to raise it by selling new equity, and why? If the after-tax cost of debt is always less expensive than equity, why don't firms use more debt and less equity? What are some of the advantages and disadvantages of raising capital by using debt? How would "floatation costs" impacted the WACC, and how could they have been incorporated in the formula? Note: You can find information about the top 500 stocks at this Web site. Reference S&P 500 index chart. (2014). Retrieved from the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=; Be sure to document your paper with in-text citations, credible sources, and list of references used in proper APA format.
Question 2
Mahaska Chemicals makes a patented fertilizer in its Naperville, Illinois plant. The production process begins by mixing all of the required materials. In a series of steps, the mixed slurry is converted to a finished fertilizer tat is bagged and sold. Mahaska incurs conversion costs uniformly throughou the process. Mahaska shut its plant down for major maintenance during November and began December with zero pounds of fertilizer in beginning inventory. Mahaska started 645,000 pounds of material into production in early December and had 95,000 pounds still in process on December 31. Mahaska estimates the ending work-in process (EWIP) inventory to be 20% complete with respect to conversion costs. (Because all materials are added at the start of the process, ending WIP is 100% complete with respect to materials). Finally, Mahaska spent $1,935,000 on materials and $1,024,200 on conversion costs during December. a. Compute quantity of fertilizer completed during Dec. b. Computer the number of equivalent units for pounds finished during Dec and fodr pounds still in process at the end of Dec, performing the exercise separately for materials and for conversion costs. c. computer the total costs to account for. d. determine the cost per equivalent pound for materials and for conversion costs. e. determine teh cost of fertilizer finished during Dec and the cost of the WIP inventory on Dec 31.
Question 3
Question 1: Explain the theoretical rationale for the NPV approach to investment appraisal and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches. After reading the ?Laurentian Bakeries? case study, answer the following question: Question 2: Appraise Laurentian Bakeries? expansion into the US frozen pizza market. You should answer Question 1 of this assignment in no more than 1000 words. The examiner would expect to see a detailed discussion of the theoretical rationale for the NPV rule. Note that describing the properties of NPV does not count as an explanation of the theoretical rationale. For Question 2, the examiner would be keen to find out if you have a clear understanding of the case study and the technique for calculating the NPV of a project. On the next page is a copy of the assessment sheet the examiner will use in order to arrive at a mark. You should answer Question 2 in no more than 1500 words.,I would like to get a good grade.,Dear Rachel, Pls see the attachment for the grading criteria.,Dear Rachel, Pls advise the progress of the assignment. Thank you and Best Regards. Don Heng,Dear Rachel, Pls advise the following: 1. How to derive the stock beta of 0.85 and market risk premium of 6% under the WACC? 2. It is kind of confusing on the calculation of cash flows on the third row where, 0.5*0.7*0.019*6.54m. What exactly is this calculation? 3. As for the Working Capital Requirements, I am confuse how come the Account receivables is 7 ? And the last sentence of "this has to be adjusted for cut of two days from average inventory age." Can you explain more in detail. 4. Am I missing some parts as there is no conclusion and NPV calculation after the working capital requirements? Thank you and Best Regards. Don Heng,Dear Rachel, I have further questions that would required your assistance: 1. Why is the Eligible CCA deduction not used? 2. Sales qty, you indicate it is 60% of expansion multiple by 10.9 million =6.54 million. However, in page 5, second paragraph that the frozen pizza sales would increase rapidly, adding 2.2 million units in fiscal 1996, another 1.8 million units in 1997, then 1.3 million additional units to reach a total of 5.3 million additional units by fiscal 1998. Therefore , can I assume the sales qty for the 10 years is as follow assuming that they can sell 100% of what is produced in the new facility: 1996- 2.2 million 1997- 4.0 million 1998 to 2006- 5.3 million Is my understand correct? 3. Why is it the $223,000 in fixed salaries and $40,000 in sales staff time not included in your calculation? 4. Can I know what is the purpose of calculating working capital requirement? How the two days cut from average inventory age impact on the $11.2 million? 5. In your answer, I could not see any indication of cash outflow after year 1. Pls explain. Thank you and Best Regards. Don Heng,Dear Rachel, As my assignment is due very soon, I would appreciate that you could provide more detail analysis and conclusion for question 2. Thank you and Best Regards. Don Heng,Dear Rachel, Just like to know whether question 2 would required us to do a decision tree as a instructive way to identify and illustrate real options? Or we need to do any sensitive analysis? Looking forward on your reply soon. Best Regards. Don Heng,Dear Rachel, I have gotten the answer for the following question 1 and 2, kind of miss it when reading the case. Pls advise the following: 1. How to derive the stock beta of 0.85 and market risk premium of 6% under the WACC? 2. It is kind of confusing on the calculation of cash flows on the third row where, 0.5*0.7*0.019*6.54m. What exactly is this calculation? Thank you and Best Regards. Don Heng",Dear Rachel, Just like to know the progress, are you still working on it. Than you and Best Regards. Don Heng,Dear Rachel, I am still unclear how to derive the cash outflow, as in your answer it doesn't seems you have calculate any production cost or so call cash outflow. Thank you and Best Regards. Don Heng,Dear Rachel, Pls see below question: 1. I am pretty uncertain on the NPV calculation, and would like you to give me your actual working and the correct answer. As we always see in most text, they question or example, they will give us is the total cash outlay in the first year and then follow by the expected cash inflow for the entire project life, and also the discounted interest rate for the entire project. Now the question is I am able to derive the cash outflow for the first year, how am I going to derive the cashflow going forward, is it Sales- cost of production + all non-cash item, to derive the net cash inflow or outflow for that particular year. In the case, I am unable to find the cost of production and therefore still pretty stuck there. 2. By calculation the WACC, is that mean we need to calculate the NPV using the WACC, to derive whether the company meets the requirement of positive NPV. I would very much appreciate you could work out all the answer so that I could compare it against my answer. Appreciate your soonest reply. Thank you and Best Reagards. 2.,Dear Rachel, Can you pls advise whether the Class 2 hurdles rate of 18% is the benchmark for the IRR rate? Do we need to calculate the IRR? Hope for your prompt reply. Thank you and Best Regards. Don Heng,Dear Rachel, I would appreciate that you could provide me the model answer for the Laurentian's case. Would really appreicate your help as my assignment is due very soon. Thank you and Best Regards. Don Heng,Dear Rachel, I have a bit of confuse on the following: In your answer, the benefits from reduced production cost is shown in the below table as: Cashflow = 0.5 * 0.7 * 0.019 * 6.54 million=$43491 ( I understand that 0.7 is the 70 per cent of increased efficiency would be realised in the first year. 0.5 is the 50 per cent of these savings could actually be achieved. $0.019 is the reduced plant wide unit cost. ) But why in your table there is also another Probability of 0.5. This is the part I cannot understand. Thank you and Best Regards. Don Heng,Dear Rachel, I would very much appreciate that you could reply to those queries I have posted and also provide a model answer for the case. As my assignment is going to due very soon from now. Thank you and Best Regards. Don Heng,Dear Rachel, Pls advise the progress, I need your reply urgently. Best Regards. Don Heng,Dear Rachel, Pls reply asap. Thank you. Don Heng,Dear Rachel, You calculation of working capital requirements of $11.2 million seems not correct. This amount relates to 3 business (pizza, cakes and Pies)and what we need to calculate is for the expansion of the pizza business only, the working capital should be lower, am I right to say that?,Dear Rachel, Can you pls reply soon, am still waiting for your model answer for the case study .,Dear Rachel, As per your answer the Cost of Equity = Stock Beta +Market risk Premium + Risk free rate on 10-year Govt bonds = 0.85 + 6% + 8.06% = 14.91% or is it =0.85*6% +8.06%=8.111% (reason being 0.85 is not in percentage) Pls advise whether my understanding is correct. Thank you and Best Regards. Don Heng
Question 4
1. Two days before the ex-dividend date, A corporation buys 100 shares of B corporation stock(a less than 1% interest)for $200,000. A corporation receives $10,000 of dividends from B corporation. Two weeks after the ex-dividend date, A sells the B corporation stock for $190,000. Which of the following statement is correct? a. A corporation cannot recognize a capital loss b. A corporation cannot take a dividends-received deduction on the B dividend. c. A corporation will be allowed a 70% dividends-received deduction when reporting the B dividend. d. A corporation will receive no dividends-received deduction because the stock was purchased ex-dividend. 2.Tony owns 100% of M corporation's single class of stock. Tony transfers land and a building having a $30,000 and $100,000 adjusted basis, respectively, to M corporation in exchange for additional M corporation common stock worth $200,000 and IBM stock worth $20,000. The IBM stock had a $5,000 basis on M corporation's books. Bill transfers $50,000 in cash for 15% of the M corporation common stock. What amount of gain is recognized by Tony and M corporation on the exchange? Tony M corporation a. $0 $0 b. $0 $15,000 c. $20,000 $0 d. $20,000 $15,000 3. Bill and Ken own Tax, Inc.(an S corporation)equally. In 2004, the corporation reported a $130,000 ordinary loss. Tax Inc.'s liabilities at the end of 2004 included $100,000 of accounts payable, $150,000 of mortgages payable, and a $20,000 note owned to Bill. Each owner has a $40,000 adjusted basis for his stock on January 1, 2004. Compute the loss reportable by Bill. a. $65,000 b. $60,000 c. $40,000 d. none of the answers are correct 4. Corporations X,Y,and Z are component members of a controlled group of corporations on December 31 of the current year. For the current year, they allocate taxable income brackets under an apportionment plan as follows: Corporation X 1/4 of each tax bracket Corporation Y 1/2 of each tax bracket Corporation Z 1/4 of each tax bracket corporation Y has taxable income of $80,000 for the current year. What is corporation Y's income tax liability if the controlled group's total taxable income is $97,000? a. $12,000 b. $15,400 c. $18,680 d. $21,325 5. Bill transferred property worth $75,000 and services worth $25,000 to the X corporation. In exchange, he received stock in X valued at $100,000. Immediately after the exchange, Bill owned 80% of the only class of outstanding stock. Which of the following is true with respect to Bill's treatment of the transaction? a. short term capital gain of $100,000 b. short term capital gain of $25,000 c. ordinary income of $25,000 d. no income until the stock is sold,Is there anybody help me out to solve those questions? Thank you.,I would like to postpone the due time of this question to 11:00pm tonight. Thank you.,Is there anyone can response me? Thanks.,Hello Michael, Are you online? Thank you.
Question 5
Below topic is given for assignment. Every student should prepare 750 to 1000 words write up. One of class mate (Robert Storer) have submitted the attached solutions. Can you read the attached and solution, ask few provoking questions with below guide lines. ? Ask a probing question. ? Share an insight from having read the attached solution. ? Offer and support an opinion or suggestion. ? Validate an idea with your own experience. ? Expand on the ideas in attached solutions Topic: A friend has asked you for some advice: "My small business now makes a profit; I am only too aware of this, as I now face a big tax bill each year, when my tax accountant has prepared my annual accounts. However, I don't feel much better off personally, so this is not quite what I had expected when I took the risk of resigning my job and setting up my own firm. The accountant is now trying to persuade me to pay her even higher fees, by letting her prepare monthly 'management accounts' for me. She says that I would also benefit from something called CVP analysis on my various product lines. I know that you are now doing an MBA. What does she mean here, and is this likely to be worth my paying her for?" Outline the differences between financial reporting and managerial accounting information and explain the benefits and potential problems associated with cost?volume?profit (CVP) analysis. How might the technique that you have discussed assist your friend in the effective management of his business' resources? What advice would you give him? ******************************************************** Solution: To understand the differences between financial reporting and management accounting we will establish what both are. Financial reporting is an umbrella covering the money within the company; it may be in a form of a financial statement, balance sheet, profit and loss, or any other extravagant options that are available. The primary function of financial reporting is to inform stakeholders on how, where, and what the monies of the company are distrusted. Allowing stakeholders to view assets verses liabilities, if the company is making a profit, where the original capital is and if any more has been invested, and the financial outlook for the future. All of these results and answers are used for two main purposes, taxes and stakeholders. However, the findings are used for many other functions, such as, comparison of competition and historical tracking of trends. Managerial accounting is designed to provide accounting information within the organization enabling the decision makers to make informed choices with both the management and control systems (Ittner and Larcker 2001). This umbrella includes break-even point analysis, profit-volume chart, marginal analysis, and cost volume profit. With these reports they stay in house, meaning they are private and not for the public eye. The differences between financial reporting and managerial accounting are: Financial reporting is made with the intentions stakeholders? will see results. Managerial accounting is private, held in house by decision makers. Financial reporting is historical data recorded tracking the past spending and receiving habits of the company. This information is processed for taxes and deciphering where the assets are. With this information you have visible evidence of the solvency of a company, allowing the prediction of future growth. Managerial accounting is future driven; framework is designed to understand how to position the control systems in a position to maximize future opportunity. Financial reporting follows set accounting boundaries established by the governing entities. Management accounting is a revolving report established by the needs and want of the decision makers. Each system is accompanied by an abundance of benefit. Financial reporting, besides being a must, will benefit your company by giving you a historical reference guide allowing you to see the swings in the market by year, season, or month. Also, allowing you to be translucent for your stakeholders creating better rapport and establishing trust. Above all else, you will be able to know where your company sits in relation to assets verse liability, debt ratio, operating ratio, working capital, and solvency among others. Management accounting is useful when establishing and reinventing control systems within the company. Additionally, it gives an opportunity for the company to run more than one report allowing the company assesses the effectiveness (Atrill and McLaney, 2011). The understanding of these assorted reports allows managers to make informed decisions for the future considering the financial results. The relationship of the financial understanding and controllable actions is a must to run optimally while maximizing efforts. In particular your accountant mentioned the use of CVP analysis. CVP is cost volume profit analysis used to differentiate actions and results of producing, pricing, and selling. A holistic view of the production operations within the company with a premium placed on price for profit concept. This tool is also useful for identifying opportunities for streamlining current tactics, like outsourcing or adding to existing products and even replacing variable costs with fixed costs (Chrysafis and Papadopoulos, 2009). The framework allows for both fixed and variable costs and both the cost and revenue are shown as linear. CVP can help you determine the effects of changes in volume or costs allowing an educated assessment of your current state and make appropriate choices for the future. Although, the framework will allow a mixture of products it does not distinguish the relative amount of a particular product to the total sale. The result of blending product pricing and cost together will not give a completely accurate account for your total portfolio, but an overview of the company in a generalized manner. However, it can still signal out faulty operation actions. The aim of this framework is short-term remedy not for long-term scrutiny. Although, there are identifiable flaws within this option it is a good start for a young company. Because of the generality of CVP it allows for elementary understanding and deviation of the report can be spawn giving more specific results. The incorporation of systematic assessments will lead to a more efficient operation allowing identifiable opportunities to be achieved with full understanding of the financial consequence. My advice would be to incorporate CVP as an added expense to better position the company for the future. In addition, break-even point (BEP) will need to be identified for continued success. Since they were unaware they made a profit last year, I would venture to say the benefits of CVP at this stage would be much more useful than just discovering costs effects on profit, but allowing a deeper understanding of all his business processes including the BEP. Bibliography Atrill, P. & McLaney, E. (2011) Finance and accounting for managers. Laureate Online Education custom ed. Harlow, UK: Pearson Custom Publishing. Chrysafis, K, & Papadopoulos, B 2009, 'Cost-volume-profit analysis under uncertainty: a model with fuzzy estimators based on confidence intervals', INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH, 47, 21, pp. 5977-5999 [Online]. Available from: http://ehis.ebscohost.com.ezproxy.liv.ac.uk/eds/pdfviewer/pdfviewer?vid=7&hid=120&sid=f8974125-6e2c-466f-9784-d63653b13d67%40sessionmgr115. (Accessed on: 17 September 2011). Ittner, C & Larcker, D (2001) ?Assessing empirical research in managerial accounting: a value-based management perspective? Journal of Accounting and Economics [Online]. Available from: http://miha.ef.uni-lj.si/_dokumenti3plus2/196128/Ittner,Larcker-2001-AssessingempiricalresearchinMA.pdf. (Accessed on: 17 September 2011).
