Question 1
"Objective | Guidelines | Milestones | Grading Rubric | Best Practices Objective Students should familiarize themselves with bonds and/or preferred stock as an investment opportunity and as a source of funds. In this assignment, students will determine why a fixed-income security may be offered by a firm, what features it must have in order to be attractive to investors, and what kind of financial results were achieved as a result. Balance sheet accounts as well as certain ratios are to be analyzed. Guidelines Papers should be 10 to 20 pages in length, 10-point font, and double-spaced; and should include a cover page, table of contents, introduction, body of the report, summary or conclusion, and works cited. Even though this is not a scientific-type writing assignment and is mostly creative in nature, references are still very important. At least six authoritative, outside references are required (anonymous authors or web pages are not acceptable). These should be listed on the last page titled "Works Cited." Appropriate citations are required. All DeVry University policies are in effect including the plagiarism policy. Any questions about this paper may be discussed in the weekly Q & A discussion topic. This paper is worth 170 total points and will be graded on quality of research topic and paper information, use of citations, grammar, and sentence structure. See the grading rubric; this is also available in Doc Sharing. Students should pick a company that has issued bonds in the last three years so that the Internet can provide sufficient financial data for analysis. Post in the Journal (a) your company choice, (b) the security offered, and (c) when that security was issued. It?s suggested that you work on at least one of each of the remaining sections each week. The final report is made up of separate sections for each milestone listed below. Each section should be approximately one page (excluding charts, graphs, etc.). Important: When preparing your report, separate the sections with headings that are the same as the highlighted milestones below. Milestones Company Background (15 points) This section should include what industry the firm is in, its products, its competitors, and the stated main reason for needing capital (to fund receivables, capacity expansion, retire older debt, etc.). Balance Sheets (20 points) What did the balance sheet looked like in the quarter just prior to issuing the bonds? Include both a copy from before the issue and after the issue. Calculate at least five of the ratios shown in the Moody?s Bond Rating Chart contained in the Week 2 Lecture both before and after the bonds were issued, and discuss why you think they are important to your report. Trends in YTM and Price (20 points) At what price and YTM was the initial offering sold? Tabulate the price and YTM of the issue at the end of each calendar quarter for the last six quarters. Then, plot the tabulated values to visualize the trends in YTM and prices. Purpose of the Offering and Leverage (20 points) What was the planned use of the funds raised? If you can?t find a specific discussion about that, then use your judgment as to why you think the funds were needed and explain your reasoning. Calculate the financial leverage before and after the offering. Credit Rating (20 points) What credit rating have the bonds been given by the bond credit rating services? Research the criteria each agency uses to determine the rating. Why (or why not) do you think that recent financial statements justify the rating? Rate of Return (30 points) If you were one of the original investors in this issue and you had invested $10,000, what would your total return be if you sold the securities at today?s market price? Compute the duration of the bond and its convexity currently. Add a brief discussion about your calculations. Comparisons (30 points) Identify and compare pre-offering EPS and total equity $ to the most current values. Compute the firm's current WACC assuming the total debt of the firm is in the issue that you analyzed. This means that if the company has more than one debt issue outstanding with a total face value of $X million and your chosen issue involves $Y million, then assume that all $X million is in your issue. This will simplify the calculations without diminishing learning value. Discuss at least three overall conclusions about this offering as a result of your research. Comments (15 points) Please give your opinion about the value of this project to your overall learning experience in this course. Constructive comments, both positive and negative, are appreciated. Discuss at least two characteristics about this project. Please edit your report so that it is something that makes you proud. Grading Rubric Fixed-Income Security Project Rubric Part Points Full Credit 3/4 Credit 1/2 Credit 1/4 Credit 1 15 Thorough description with all requirements All elements included, but lacks some depth Clear reason for funding Some elements included, but lacks depth. Unclear reason for funding Minimal description Most elements missing No reason for funding II 20 Pre and post balance sheets Pre and post D/E and ROE ratios Balance sheets included 3/4 ratios shown Balance sheet included Only 1/2 the ratios shown Missing one or more balance sheet(s) No ROE shown III 20 Trends in YTM and price All included, except 18-month trend incomplete Partial trends included No indication of the trends IV 20 Found and commented on purpose of the offering Computed financial leverage before and after offering Found purpose of offering and leverage, but incomplete Purpose or leverage missing Some information provided without explanation V 20 Found credit rating on the security from two agencies; listed criteria needed for that rating Only one agency rating found Criteria shown Only one agency found, but no criteria shown No credit ratings found VI 30 Computed total return, duration, and convexity, and discussed All calculations shown, interest or dividends shown, but TVM improperly applied Calculations shown and TVM applied improperly TVM not used to calculate total return No calculations shown VII 30 Compared EPS, total equity pre-offering to most current Computed WACC and discussed your thoughts about them Three conclusions reached, but with weak justifications EPS and ROE determined Conclusions shown but without justification Calculations incomplete No conclusions or calculations shown VIII 15 Opinion on value of project to course Two or more constructive comments Opinion with weak justification One constructive comment Opinion without justification One constructive comment No opinions One constructive comment Total Points = 170 Best Practices The following are the best practices in preparing this paper. Plan ahead using the suggested milestones. Do research early so if any problems occur you have time to fix them. If you get stuck at any point, pose questions to your instructor and/or your classmates. Cover page: Include who the paper was prepared for, who prepared it, and the date. Table of contents: List the main ideas and sections of you paper and the pages on which they are located. The illustrations should be included separately. Introduction: Use a header on your paper; this will indicate that you are introducing your paper. The purpose of an introduction or opening is to: introduce the subject and why the subject is important; preview the main ideas and the order in which they will be covered; and establish a tone of the document. Include in the introduction a reason for the audience to read the paper. Also, include an overview of what you are going to cover in your paper and the importance of the material. (This should include or introduce the questions you are asked to answer on each assignment.) Body of your report: Use a header titled with the name of your project (e.g., ?The Development of Hotel X - A World Class Resort?). Then proceed to break out the main ideas. State the main ideas, the major points in each idea, and provide evidence. Break out each main idea you will use in the body of your paper. Show some type of division; you can separate sections that are labeled, separate group of paragraphs, or separate headers. You will include the information you found during your research and investigation. Summary and conclusion: Summarizing is similar to paraphrasing, but presents the gist of the material in fewer words than the original. An effective summary identifies the main ideas and major support points from the body of your report; minor details are left out. Summarize the benefits of the ideas and how they affect the tourism industry. Work cited: Use the citation format as specified in the Syllabus. Additional hints on preparing the best possible project: Apply a three-step process of writing: plan, write, and complete. Prepare an outline of your research paper before you go forward. Complete a first draft and then go back to edit, evaluate, and make any required changes. Use visual communication to further clarify and support the written part of your report (e.g., graphs, diagrams, photographs, flowcharts, maps, drawings,,I am offering 100$ for this assignment. I would prefer Rachel P.
Question 2
Managerial accounting how is the cost per equivalent unit calculated when using the First in-First out method? What formula is used? what is the journal entry to record raw material that is brought into the processing department? What is debited? What is credited? Quality Reporting (Chapter 2 Appendix 2B) . What are the costs of quality? Give a brief description of each. . What is a Quality Cost Report? What are three uses for the report? Transfer Pricing . Explain the three methods used to determine transfer pricing. Which method is preferred, if any? Job Order Costing (Chapter 3) Cost Flow in Job Order Costing . How do direct costs flow through a job-order costing system? . In what type of situations would job-order costing be appropriate to use? Estimating and Correcting Overhead Costs . What is the formula to calculate overhead rate? . How are overhead costs applied in a job-order costing system? . What are the alternative methods for disposing of applied overhead balances? Process Costing (Chapter 4) Process Costing - Equivalent units . How do materials costs and conversion costs flow through a process costing system? . How is the cost per equivalent unit calculated when using the weighted-average method? The Production Report . How is total cost accounted for on a production report when using the weighted-average method? . How is the cost per equivalent unit calculated when using the First in-First out method? Cost-Volume-Profit (Chapter 5 and 6) . How do you compute the break-even point? . How do you compute the contribution margin? . How do you determine the margin of safety and what is its significance? Variable and Absorption Costing (Chapter 7) Net Income Effects and Reporting Choice . What is the effect of variable costing on net income? . What is the effect of absorption costing on net income? . What is the difference in net income calculated under absorption costing versus net income calculated under variable costing? . What are the advantages and disadvantages of variable costing? . What are the advantages and disadvantages of absorption costing? Activity-Based Costing (Chapter 8) ABC and Allocating Costs . What are the correct criteria to use when assigning overhead costs to products? (Note: Consider both manufacturing and non-manufacturing costs.) . How does recording idle capacity cost in an activity-based costing system differ from recording idle capacity cost in a traditional cost system? . What are first-stage and second-stage allocations in activity-based costing systems? Developing Budgets (Chapter 10) Flexible Budgeting . What are the benefits and limitations of a flexible budget system? Variances (Chapter 11) Reporting Variances from Standards . What are direct materials standards? . What are direct labor standards? . How are direct materials variances computed (Address price and quantity variances) . How are direct labor variances computed? (Address rate and efficiency variances) . How are variable manufacturing overhead variances computed? (Address spending and efficiency variances) . What criteria are used to decide whether a variance is favorable or unfavorable? . What are possible causes of each type of favorable and unfavorable variances? Management Tools and Data (Chapter 12) Cost Centers and Reportable Segments . What is the type of cost center that is applicable to a company segment? . What is the formula to calculate return on investment and economic value added? Cost/Benefit Analysis (Chapter 13) Differential and Cost/Benefit Analysis . What is marginal cost? . What is sunk cost? . What is opportunity cost? . What is the impact of marginal costs, sunk costs, and opportunity costs on decisions? . What are the relevant costs and benefits that should be considered when deciding whether to drop or add a product line or department? . What costs and benefits should be considered when deciding whether to accept or reject a special order? . What costs and benefits should be considered when deciding whether to make or buy? . What costs and benefits should be considered when deciding whether to sell joint products at the split-off point or to process them further?,I think I was suppose to reply to this immediately, were you able to work on it at all?,Thank you
Question 3
12-29 Countywide Cable Services, Inc. is organized with three segments: Metro, Suburban, and Outlying. Data for these segments for the year just ended follow. Metro Suburban Outlying Service revenue .................................................................... $1,000,000 $800,000 $400,000 Variable expenses ................................................................ 200,000 150,000 100,000 Controllable fixed expenses .................................................400,000 320,000 150,000 Fixed expenses controllable by others .................................230,000 200,000 90,000 In addition to the expenses listed above, the company has $95,000 of common fixed expenses. Income-tax expense for the year is $145,000. Required: 1. Prepare a segmented income statement for Countywide Cable Services, Inc. Use the contribution format. 13-27 Golden Gate Construction Associates, a real estate developer and building contractor in San Francisco, has two sources of long-term capital: debt and equity. The cost to Golden Gate of issuing debt is the after-tax cost of the interest payments on the debt, taking into account the fact that the interest payments are tax deductible. The cost of Golden Gate?s equity capital is the investment opportunity rate of Golden Gate?s investors, that is, the rate they could earn on investments of similar risk to that of investing in Golden Gate Construction Associates. The interest rate on Golden Gate?s $60 million of long-term debt is 10 percent, and the company?s tax rate is 40 percent. The cost of Golden Gate?s equity capital is 15 percent. Moreover, the market value (and book value) of Golden Gate?s equity is $90 million. Required: Calculate Golden Gate Construction Associates? weighted-average cost of capital. 13-28 Refer to the data in the preceding exercise for Golden Gate Construction Associates. The company has two divisions: the real estate division and the construction division. The divisions? total assets, current liabilities, and before-tax operating income for the most recent year are as follows: Division Total Assets Current Liabilities Before-Tax Operating Income Real estate ....................................................................... $100,000,000 $6,000,000 $20,000,000 Construction .................................................................... 60,000,000 4,000,000 18,000,000 Required: Calculate the economic value added (EVA) for each of Golden Gate Construction Associates? divisions. (You will need to use the weighted-average cost of capital, which was computed in the preceding exercise.) 13-29 (parts 1 ? 2) Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers? lots. Wyalusing expanded into the precut housing market when it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers? lots for assembly. Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 15 percent before income taxes. Fairmont?s ROI has ranged from 19.3 to 22.1 percent since it was acquired. Fairmont had an investment opportunity in 20x1 that had an estimated ROI of 18 percent. Fairmont?s management decided against the investment because it believed the investment would decrease the division?s overall ROI. The 20x1 income statement for Fairmont Division follows. The division?s productive assets were $12,600,000 at the end of 20x1, a 5 percent increase over the balance at the beginning of the year. FAIRMONT DIVISION Income Statement For the Year Ended December 31, 20x1 (in thousands) Sales revenue ................................................................................................................................................. $24,000 Cost of goods sold ........................................................................................................................................... 15,800 Gross margin .............................................................................................................................................. $ 8,200 Operating expenses: Administrative ............................................................................................................................ $2,140 Selling ........................................................................................................................................ 3,600 5,740 Income from operations before income taxes .................................................................................................... $ 2,460 ? Exercise 13?29 Required: 1. Calculate the following performance measures for 20x1 for the Fairmont Division. a. Return on investment (ROI). b. Residual income. 2. Would the management of Fairmont Division have been more likely to accept the investment Opportunity it had in 20x1 if residual income were used as a performance measure instead of ROI? Explain your answer
Question 4
Ace Investment Company is considering the purchase of the Apartment Arms project. Next year?s NOI and cash flow is expected to be $ 2,000,000, and based on Ace?s economic forecast, market supply and demand and vacancy levels appear to be in balance. As a result, NOI should increase at 4 percent each year for the foreseeable future. Ace believes that it should earn at least a 13 percent return on its investment. a. Assuming the above facts, what would the estimated value for the property be now? b. What ? going- in? cap rates should be indicated from recently sold properties that are comparable to Apartment Arms? c. Assuming that in part ( a) the required return changes to 12 percent, what would the value be now? d. Assume results in part ( c). What should the investor now be observing regarding the price of ? comparable? sales? What market forces may be accounting for the differences in value between ( a) and ( c)? An office building has three floors of rentable space with a single tenant on each floor. The first floor has 20,000 square feet of rentable space and is currently renting for $ 15 per square foot. Three years remain on the lease. The lease has an expense stop at $ 4 per square foot. The second floor has 15,000 square feet of rentable space and is leasing for $ 15.50 per square foot and has four years remaining on the lease. This lease has an expense stop at $ 4.50 per square foot. The third floor has 15,000 square feet of leasable space and a lease just signed for the next five years at a rental rate of $ 17 per square foot, which is the current market rate. The expense stop is at $ 5 per square foot, which is what expenses per square foot are estimated to be during the next year ( excluding management). Management expenses are expected to be 5 percent of effective gross income and are not included in the expense stop. Each lease also has a CPI adjustment that provides for the base rent to increase at half the increase in the CPI. The CPI is projected to increase 3 percent per year. Estimated operating expenses for the next year include the following: Property taxes $ 100,000 Insurance 10,000 Utilities 75,000 Janitorial 25,000 Maintenance 40,000 Total $ 250,000 All expenses are projected to increase 3 percent per year. The market rental rate at which leases are expected to be renewed is also projected to increase 3 percent per year. When a lease is renewed, it will have an expense stop equal to operating expenses per square foot during the first year of the lease. To account for any time that may be necessary to find new tenants after the first leases expire, vacancy is estimated to be 10 percent of EGI for the last two years ( years 4 and 5). a. Project the effective gross income ( EGI) for the next five years. b. Project the expense reimbursements for the next five years. c. Project the net operating income ( NOI) for the next five years. d. How much does the NOI increase ( average compound rate) over the five years? e. Assuming the property is purchased for $ 5 million, what is the overall capitalization rate (? going- in? rate)?
Question 5
COMPREHENSIVE CAPITAL BUDGETING PROJECT A comprehensive capital budgeting project will be due at the end of this module. Assignment: You are interested in proposing a new venture to the management of your company. Pertinent financial information is given below. BALANCE SHEET Cash 2,000,000 Accounts Receivable 28,000,000 Net Fixed Assets 133,000,000 Inventories 42,000,000 Total Assets 205,000,000 Accounts Payable and Accruals 18,000,000 Long-Term Debt 60,000,000 Notes Payable 40,000,000 Preferred Stock 10,000,000 Common Equity 77,000,000 Total Claims 205,000,000 Last year?s sales were $225,000,000. ? The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. ? You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. Any new issues of preferred stock would incur a 3.33% per share flotation cost. ? The company has 10 million shares of common stock outstanding with a current price of $14.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D0) was $.80. New stock could be sold with flotation costs of 15 percent. ? The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 14 percent. Your stock?s beta is 1.22. ? Stockholders require a risk premium of 5 percent above the return on the firms bonds. ? The firm expects to have additional retained earnings of $10 million in the coming year, and expects depreciation expenses of $35 million. ? Your firm does not use notes payable for long-term financing. ? The firm considers its current market value capital structure to be optimal, and wishes to maintain that structure. (Hint: Examine the market value of the firm?s capital structure, rather than its book value when determining the weights in the WACC calculations.) ? The firm?s management requires a 2% adjustment to the cost of capital for risky projects. ? Your firm?s federal + state marginal tax rate is 40%. ? The firm has the following investment opportunities currently available in addition to the venture that you are proposing: Project Cost IRR A 10,000,000 20% B 20,000,000 18% C 15,000,000 14% D 30,000,000 12% E 25,000,000 10% Your venture would consist of a new product introduction (You should label your venture as Project I, for ?introduction.). You estimate that your product will have a six-year life span, and the equipment used to manufacture the project falls into the MACRS 5-year class. Your venture would require a capital investment of $15,000,000 in equipment, plus $2,000,000 in installation costs. The venture would also require an initial investment in accounts receivable and inventories of $4,000,000. At the end of the six-year life span of the venture, you estimate that the equipment could be sold at a $4,000,000 salvage value. Your venture, which management considers risky, would increase fixed costs by a constant $1,000,000 per year, while the variable costs of the venture would equal 30 percent of revenues. You are projecting that revenues generated by the project would equal $5,000,000 in year 1, $10,000,000 in year 2, $14,000,000 in year 3, $16,000,000 in year 4, $12,000,000 in year 5, and $8,000,000 in year 6. The following list of steps provides a structure that you should use in analyzing your new venture. Note: Carry all final calculations to two decimal places. Phase 1 1. Find the costs of the individual capital components (12 points): a. long-term debt b. preferred stock c. retained earnings (avg. of CAPM, DCF, & bond yield + risk premium approaches) d. new common stock 2. Determine the target percentages (weights) for the optimal capital structure. (Carry weights to four decimal places. For example: 0.2973 or 29.73%) (3 points) 3. Compute the retained earnings break point. (3 points) 4. Draw the MCC schedule, including depreciation-generated funds in the schedule. (7 points) Phase 2 5. Compute the Year 0 investment for Project I. (3 points) 6. Compute the annual operating cash flows for years 1-6 of the project. (12 points) 7. Compute the non-operating (end-of-project) cash flows at the end of year 6. (3 points) 8. Draw a timeline that summarizes all of the cash flows for your venture. (3 points) Note: You may complete #5-8 in an Excel spreadsheet or calculate these manually. Phase 3 9. Compute the IRR and payback period for Project I. (10 points) 10. Draw the IOS schedule, including Project I along with Projects A-E. (4 points) 11. Determine your firm?s corporate cost of capital. (5 points) 12. Compute the discounted payback and NPV for Project I at the risk-adjusted cost of capital for project I. (10 points) 13. Indicate which projects should be accepted, and why. (10 points) 14. Would your answer be different if the project I was determined to be of average risk? Explain. (5 points) Phase 4 15. Summarize your findings and recommendations in a brief (1-2 page) memo to the President of the firm. (10 points) 16. Conclude the project with your reflections on what you have learned from this course and how it has affected your view of your own job and career. Is there a complete answer in Excel format to the above??
