Question 1
This case deals with the valuation of Hongxing Auto Sales and Service, a small, privately owned business. New car sales represent over 70 percent of the revenue and car service represents the remaining portion. You will calculate the firm's value using several different valuation methods and recommend a price that is reasonably reflects the existing state and prospects for this company. Assigned Questions (include spreadsheet exhibits to support your response): 1) How much is the company worth if all assets are liquidated, the liabilities are paid off and the business is shut down? (25-pts) 2) How much is the business worth, taking into account the future cash flows it may generate for the new owners? For purposes of this analysis, assume no future growth. (25-pts) 3) As an advisor to the Li family, what price would you recommend as being reasonable? Explain your rationale. (30-pts) 4) If I were to tell you the gross profit per used car at Carmax is approx. $2,216, then name two ways they could increase that profit level over the next twelve months (10-pts). Explain whether or not you expect used car prices to be down next year at this time (consider used car pricing trends at ww.manheim.com). Should Carmax lower its gross profit/car to drive volume and an appropriate operating income payoff? (10-pts) Valuation models : Liquidation Valuation model (book value model) Gross up land value pay extra care for this
Question 2
Patton issues $650,000 of 5.0%, four-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at $584,361 and their market rate is 8% at the issue date. 3. value: 10 points 1. Prepare the January 1, 2011, journal entry to record the bonds' issuance. (Omit the "$" sign in your response.) Date General Journal Debit Credit Jan. 1 check my workeBook Links (2)references 4. value: 10 points 2. Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.) Total bond interest expense $ check my workeBook Links (2)references 5. value: 10 points 3. Prepare a straight-line amortization table for the bonds' first two years. (Make sure that the unamortized discount is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Semiannual Interest Period-End Unamortized Discount Carrying Value 1/01/2011 $ $ 6/30/2011 12/31/2011 6/30/2012 12/31/2012 check my workeBook Links (2)references 6. value: 10 points 4. Prepare the journal entries to record the first two interest payments. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Date General Journal Debit Credit June 30 Dec. 31
Question 3
Question 6. (15 points) Caravan Gaming Company is interested in developing a new facility in Brazil. The company estimates that the project would require an initial investment of $31 million. The company expects that the project will produce positive cash flows of $5,050,000 a year at the end of each of the next 15 years. The project's cost of capital is 14%. a. Calculate the expected net present value of the project. b. The company recognizes that the cash flows may be much higher or lower, depending on whether the host government imposes a large facility tax. One year from now, the company will know whether the tax will be imposed. There is a 45 percent chance that the tax will the imposed, in which case the yearly cash flows will be only $4.5 million and there is a 55 percent chance that the tax will not be imposed, in which case the yearly cash flows will be $5.5 million. If the company waits a year to start the project, the initial investment will remain at $31 million, and incoming cashflows will be delayed one year. Using decision tree analysis, calculate the value of the real option to wait a year before deciding. Use a discount rate of 14 percent c. Discuss 2-3 other factors that the company should consider in making a decision to go ahead with the project now or wait for one year.,It is after midnight here and I will be heading off to sleep. I'll check back first thing in the morning. Thanks! -Todd
Question 4
Case Study 2 Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available: Number of seats per passenger train car 90 Average load factor (percentage of seats filled) 70% Average full passenger fare $ 160 Average variable cost per passenger $ 70 Fixed operating cost per month $3,150,000 Formula : Revenue = Units Sold * Unit price Contribution Margin = Revenue ? All Variable Cost Contribution Margin Ratio = Contribution Margin/Selling Price Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio Margin of Safety = Revenue - Break Even Points in Sales Degree of Operating Leverage = Contribution Margin/Net Income Net Income = Revenue ? Total Variable Cost ? Total Fixed Cost Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units a. Contribution margin per passenger =? Contribution margin ratio =? Break-even point in passengers = Fixed costs/Contribution Margin = Passengers =? Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $ ? b. Compute # of seats per train car (remember load factor?) If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) =? c. Contribution margin =? Break-even point in passengers = fixed costs/ contribution margin Passengers =? train cars (rounded) =? d. Contribution margin =? Break-even point in passengers = fixed costs/contribution margin Passengers =? train cars ( rounded) = ? e. Before tax profit less the tax rate times the before tax profit = after-tax income = $ ? Then, proceed to compute # of passengers -=? f. # of discounted seats = ? Contribution margin for discounted fares X # discounted seats = $ each train X$ ? train cars per day X ? days per month= $? minus $ additional fixed costs = $? pretax income. g. 1. Compute Contribution margin Then, # seats X $ X # train cars = $ ? Increased fixed cost ( ?) Pretax gain (loss) on new route $ 2 and 3. Compute # of passengers and train cars using computation approaches employed in some of the above problems. 4. Springfield should consider such things as (Think of qualitative factors that are important. In other words, not the numbers but other things that have to be considered, e.g., risks)
Question 5
Hello Class, Following are the requirements and steps for the Week 3 assignment. 1 Complete the 2006% of sales calculations. 2005 % of sales has been calculated as an example. 2 Answer this question: why is the % of sales for sales 100%? We will now step through each assumption provided in the New Strategic Initiative Assumptions Memo (the original). For each assumption, please indicate which line items on the income statement and balance sheet would be directly impacted by the assumption. Line item reference numbers are provided in Column B of the historical statements. Assumption 1 has been completed as an example. Assumption Income Statement Line Item(s) directly impacted. Balance Sheet Line Item (s) directly impacted. 3 Assume inflation of 4% on expenses, not including depreciation and taxes. This is in addition to the IS 2,3.4,5,6,7,11 None This is in addition to the new initiative's costs.. 4 Assume the following regarding variables versus fixed-nature-of-income-statement operating expenses for the existing business: a. 80% of wage benefits is variable and 20% is fixed. b. 100% of fuel expenses, purchased transportation, and operating supplies is variable. c. 100% of operating taxes is fixed. d. 20% of insurance and claims is fixed; the balance is variable. e. Assume depreciation, even with new expenditures, is fixed as the retirement of written-off assets, equaling new equipment. 5 There will be new spending areas reflected on future budgets to reflect added satellite warehouse costs and space rental and costs of running the locations. a. In the first year, add $10 million of inflation, space rental, and operating costs at 25% of revenues from the new initiative. b. In the second year, add $10 million space rental, with inflation at the same variable percentage of sales. c. In the third year, add $7.5 million of the variable percentage of sales. 6 In marketing, budget accounts have been added for new incurred costs. We will continue our present promotion and launch a new program, with the assistance of our marketing partner, the ABC Marketing Agency. They will advise us on the type, frequency, and content of new messages. Assume 100% of the existing budget is fixed with respect to volume along with new expenses. We expect incremental expenses, with $5 million of inflation in the first three years. 7 Our existing sales force, comprised of four national account managers, will call on clients such as Wal-Mart?, Sears?, and Best Buy?. Existing expenses are assumed to be 100% fixed in relation to revenue. To tap into specialized markets, our strategy is aimed at adding four industry-specific managers, each with a salary base of $50,000 and 2% commission of generated revenues. 8 The human resources budget will not change substantially aside from added hiring, recruiting, training, and drug testing fees. Assume 10% of expenses is fixed; the balance is variable with volume. 9 Assume current assets and liabilities are variable. Expect an addition of $10 million to operating property, spent in the first year. Our payment to vendors, suppliers, and taxes will be in thirty-day terms. We expect all payments to be in sixty-day terms. 10 Assume revenue growth from our existing business will grow at 8% versus 10% in past years. Our new strategy, however, adds incremental consulting revenues of $3.5, $4.5, and $6.5 million in the first, second, and third years. New warehousing will add revenue of $10, $30, and $40 million in the first, second, and third years. All new revenue will be subject to commissions for industry-specific managers. 11 Using 2006 data, calculate the current ratio. 12 Using 2006 data, calculate the profit percentage 13 Using 2006 data, calculate the debt to asset ratio 14 Explain how EFN can be calculated using the income statement and balance sheet. 15 Complete the 2007 pro forma statements (income statement and balance sheet) using the following guidelines: Sales increase 10% from 2006. Use line items 5 and 9 to determine which expenses are variable (change with sales) and which are fixed. 16 Does Huffman need to borrow money? That would be your EFN calculation,Thank you, I appreciate your assistance.,I'm sorry but I do not understand the second excel file sent. Is it supposed to be the pro forma statement of income and balance sheet for 2007?,I have until 1:00 AM to submit the assignment.
