Question 1
ask Type: Individual Project Deliverable Length: Word document of 700?1,000 words with attached Exc Points Possible: 150 Due Date: 9/1/2014 11:59:59 PM CT Click here to add this assignment to your calendar Weekly tasks or assignments (Individual or Group Projects) will be due by Monday, and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time. Your next assignment as a financial management intern is to apply the knowledge that you acquired while engaging in the time value of money discussion that you had with your colleagues. In this task, you will be building the foundation for a retirement plan using the concepts presented in this phase. This individual project deals with two timelines: years before retirement (pre-retirement stage), years during retirement (retirement stage). Part 1 For the first part of this plan, we need to calculate the rate of return of our retirement savings will earn until we reach our retirement age (67 years old). To do this we are, you will need to estimate the 5-year average rate of return of the stock market (you should use the S&P 500 stock index, which can be researched at finance Web sites) using the table below: S&P 500 Index Value 5 yrs. ago (PV) S&P 500 Index Value Now (FV) Number of Periods (NPER) 5-Year Return on S&P 500 Index (RATE) 5 After calculating the 5-Year Return on the S&P 500 Index (RATE), determine how long it will take for an investment to double using the Rule of 72. Now that you have an understanding of the return in the market, you need to think about planning for future retirement. Part 2 For the 2nd part of this plan, we need an understanding of how much money an individual would need in the future for retirement. For this step, assume an individual needed the following amounts to retire, how much would he or she have to invest today? The future value of the accounts is given in the table below. The rate of return we are assuming will be the 5-Year Return on Top 500 Stocks you calculated in the previous step. For the years to retirement, assume retirement age is 67. Calculate the difference between retirement age and the current age of an individual (i.e. 30, 20, 30 years). Now you are ready to calculate the present value of the following amounts (FV of Account). $1,000,000 $2,000,000 $4,000,000 FV of Account (Given) 5-Year Return on Top 500 Stocks (RATE) Years to Retirement (NPER) Find PV of Investment $ 1,000,000 $ 2,000,000 $ 4,000,000 Part 3 For the 3rd part of this retirement plan, you will need to estimate the future cost of 3 lifestyles assuming an inflation rate of 3% and the number of years before you turn 67 years old. Below are three different lifestyles to consider: Basic: Current cost = $50,000 Comfortable: Current cost = $100,000 Luxury: Current cost = $150,000 You will use the same number of years to retirement (NPER) as you calculated in the previous step. In the table below, calculate the future value of the current lifestyles. PV of Life Style (Given) Average Rate of Inflation (RATE) Years to Retirement (NPER) Find FV of Life Style $ 50,000 3.0 % $ 100,000 3.0 % $ 150,000 3.0 % Part 4 For the 4th part of this retirement plan, you will utilize the FV of the Life Styles you calculated in the previous step to understand how much money an individual will need to have saved to get through the retirement stage. To do this, you will need to estimate the life expectancy of the retiree. Based on current averages, the life expectancy of an individual is 90 years of age. Now, you can subtract the life expectancy of the retiree from 67 (the retirement age) to determine the number of years in during the retirement stage (NPER, given 23 years). The rate of return that will be used is adjusted for 3% inflation. (hint: the inflation adjusted amounts will be the payment as you will be calculating the present value of this annuity using a rate of return of 12%). In the following table, calculate the total amount that will need to be saved to get through the retirement stage (Required Value at Retirement). FV of Life Style (PMT) Given Expected Rate of Return (RATE) Years in Retirement (NPER) Required Value at Retirement (Find PV of Annuity) 12.0% 23 Part 5 For the 5th part of this retirement plan, calculate the annual contribution that needs to be made to have each required amount at retirement. This is one of the most important parts of this plan, as this is the amount an individual needs to save each year before reaching the retirement stage. To determine the annual contribution, in the table below, use the amount that you calculated in the previous step (Required Value at Retirement) the market rate of return you calculated in the 1st part of the plan, and the number of years to retirement in the 2nd part of the plan. Required Value at Retirement (PV of Annuity) 5-Year Return on S&P 500 Index (Rate) Years to Retirement (NPER) Annual Contribution Required to meet goal (Find PMT) 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: The difference between present and future values How the present value and future value calculations are calculated and related The difference between compounding and discounting Note: You can find information about the top 500 stocks at this 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=;" 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. Please submit your assignment.
Question 2
VALUING AN AMERICAN OPTION J&B Drilling Company has recently acquired a lease to drill for natural gas in a remote region of southwest Louisiana and southeast Texas. The area has long been known for oil and gas production, and the company is optimistic about the prospects of the lease. The lease contract has a three-year life and allows J&B to begin exploration at any time up until the end of the three-year term. J&B?s engineers have estimated the volume of natural gas they hope to extract from the leasehold and have placed a value of $25 million on it, on the condition that explorations begin immediately. The cost of developing the property is estimated to be $23 million (regardless of when the property is developed is developed over the next three years). Bases on historical volatilities in the returns of similar investments and other relevant information, J&B?s analysts have estimated that the value of the investment opportunity will evolve over the next three years. The risk-free rate of interest is currently 5%, and the risk-neutral probability of an uptick in the value of the investment is estimated to be 46.26%. A. Evaluate the value of the leasehold as an American call option. What is the Lease worth today? B. As one of J&B?s analysts, what is your recommendation as to when the company should drilling?
Question 3
10. Consider the production, sales inventory, and capacity limits stated below for the manufacture of small turbine engines used in auxiliary power units, ground support equipment and various other uses. The company expects to market the unit for $50,000 each in quarters one and two and to raise the price to $55,000 for the third quarter. At that price it is expected that demand for the three periods will be 250, 300, and 300 respectively. Cost of production is expected to increase by $1000 each quarter, with period one cost at $28,000. If overtime production must be used, cost of production during overtime will be 20% higher than normal production costs, due to higher wage rates. Production capacity for the three periods is 250, 300, 300, respectively, and overtime capacity is 100, 100, and 125 for each period, respectively. Inventory costs, including an estimate of opportunity costs of the money and labor invested is $5,000 for periods one and two, and $5,500 for period three. The costs of lost sales, an amount to indicate loss of customer goodwill and loyalty is estimated to be very high, since there are several new, aggressive competitors entering the market. It is estimated at $40,000 per lost sale. At commencement of period 1 there are 100 units in inventory. Due to expected high demand in period four it is desired to have not less than 50 units in inventory. a. Develop a table containing sales, lost sales, product, overtime production, and inventory at period completion for each period. b. What is the total profit for the three periods combined? c. If inventory costs were reduced by 50% would the production schedule change?
Question 4
By walking through a set of financial data for XYZ, this assignment will help you better understand how theoretical stock prices are calculated and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (capital asset pricing model) and the constant growth model (CGM) to arrive at XYZ's stock price. To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Assignment Guidelines: * Find an estimate of the risk-free rate of interest (krf). To obtain this value, go to Bloomberg.com: Market Data and use the "U.S. 10-year Treasury" bond rate (middle column) as the risk-free rate. In addition, you also need a value for the market risk premium. Use an assumed market risk premium of 7.5%. * Download the XYZ Stock Information by clicking the link. * Using the information from the XYZ Stock Information document, record the following values: o XYZ's beta (?) o XYZ's current annual dividend o XYZ's 3-year dividend growth rate (g) o Industry P/E o XYZ's EPS * With the information you recorded, use the CAPM to calculate XYZ's required rate of return (ks). * Use the CGM to find the current stock price for XYZ. We will call this the theoretical price (Po). * Now use appropriate Web resources to find XYZ's current stock quote (P). Compare Po and P and answer the following questions: o Are there any differences? o What factors may be at work for such a difference in the two prices? * Now assume the market risk premium has increased from 7.5% to 10% and this increase is due only to the increased risk in the market. In other words, assume the krf and the stock's beta remain the same for this exercise. o What will the new price be? Explain. * Recalculate XYZ's stock price using the P/E ratio model and the needed info found in the XYZ Stock Information file. o Why is the present stock price different from the price arrived at using CGM (Constant Growth Model)? * If you used Microsoft Word to arrive at your answers, then you must provide an explanation of the formulas and calculations. Your submitted assignment (125 points) must include the following: * A 2?3 page, double-spaced Word document that contains the following: o All of the numerical values listed in the assignment guidelines. o Your answers to the four questions in the assignment guidelines. o The formulas and calculations that you used to arrive at your answers * You must include your explanation of how you used Microsoft Excel for your calculations if applicable.,By walking through a set of financial data for XYZ, this assignment will help you better understand how theoretical stock prices are calculated and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (capital asset pricing model) and the constant growth model (CGM) to arrive at XYZ's stock price. To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Assignment Guidelines: * Find an estimate of the risk-free rate of interest (krf). To obtain this value, go to Bloomberg.com: Market Data and use the "U.S. 10-year Treasury" bond rate (middle column) as the risk-free rate. In addition, you also need a value for the market risk premium. Use an assumed market risk premium of 7.5%. * Download the XYZ Stock Information by clicking the link. * Using the information from the XYZ Stock Information document, record the following values: o XYZ's beta (?) o XYZ's current annual dividend o XYZ's 3-year dividend growth rate (g) o Industry P/E o XYZ's EPS * With the information you recorded, use the CAPM to calculate XYZ's required rate of return (ks). * Use the CGM to find the current stock price for XYZ. We will call this the theoretical price (Po). * Now use appropriate Web resources to find XYZ's current stock quote (P). Compare Po and P and answer the following questions: o Are there any differences? o What factors may be at work for such a difference in the two prices? * Now assume the market risk premium has increased from 7.5% to 10% and this increase is due only to the increased risk in the market. In other words, assume the krf and the stock's beta remain the same for this exercise. o What will the new price be? Explain. * Recalculate XYZ's stock price using the P/E ratio model and the needed info found in the XYZ Stock Information file. o Why is the present stock price different from the price arrived at using CGM (Constant Growth Model)? * If you used Microsoft Word to arrive at your answers, then you must provide an explanation of the formulas and calculations. Your submitted assignment (125 points) must include the following: * A 2?3 page, double-spaced Word document that contains the following: o All of the numerical values listed in the assignment guidelines. o Your answers to the four questions in the assignment guidelines. o The formulas and calculations that you used to arrive at your answers * You must include your explanation of how you used Microsoft Excel for your calculations if applicable.
Question 5
Case 10-1 SolvGen Inc. Direct Drugs Inc. (Direct) is planning to acquire SolvGen Inc. (SolvGen or the Company), a publicly owned company, during the fourth quarter of fiscal year ending December 31, 2006. Direct has engaged our audit engagement team to perform due diligence procedures, with an emphasis on the review of two separate material agreements: (1) a research and development agreement and (2) a license and distribution agreement, both executed by SolvGen during the first quarter of fiscal year 2006. Direct?s management provided the engagement team with the following memo describing the Company?s revenue recognition policy: MEMO To: Audit Engagement Team From: CFO, SolvGen Inc. Subject: Revenue Recognition for Research and Development and License and Distribution Agreements Date: November 30, 2006 SolvGen Inc. (the Company), an SEC registrant, is a pharmaceutical development company. SolvGen entered into a five-year research and development agreement with Careway Pharma Inc. (Careway) on January 1, 2006. The research and development agreement calls for SolvGen to use its best efforts to further develop proprietary instrument systems that have been under development for nearly 18 months and are expected to be ready for commercial launch in the near future. In connection with executing the research and development arrangement, SolvGen and Careway also entered into a five-year license and distribution agreement dated January 1, 2006. Under the terms of the research and development agreement, SolvGen retains all intellectual rights to the results of the research and development agreement (even in the event of default by the Company). In connection with this agreement, SolvGen is entitled to the following nonrefundable milestone payments from Careway: 1. Exclusive negotiation payment ? $1 million (paid December 1, 2005). 2. Contract signing payment ? $2 million (paid January 1, 2006). 3. Commercial launch of instrument system Version 1 ? $5 million (paid March 31, 2006, upon commercial launch of the instrument system). 4. Commercial launch of instrument system Version 2 ? $5 million (not yet paid). 5. Commercial launch of instrument system Version 3 ? $5 million (not yet paid). Under the five-year license and distribution agreement, Careway will have the right to market and distribute the proprietary instrument systems. The license and distribution agreement requires Careway to pay SolvGen for each proprietary instrument system as it is purchased by Careway. In accounting for the research and development and the license and distribution agreements, SolvGen recognizes the nonrefundable milestone payments when the payments are received over the remaining estimated contractual life of the agreements. Required: In deciding how to account for the research and development and the license and distribution agreements, address the following issues: What are the deliverables for the arrangement described in the case study above? When should the milestone payments received to date by SolvGen be recognized as revenue? Would your answer to the first requirement change under IFRSs? Explain your rationale supported by the guidance. Please reference the codification and let me know if you have any questions.,Michael, Thanks for your help. I set the due date as the 6th of April, but if your schedule permits a quicker response, even better.,Michael, The due date is today. Do you have my answer yet? Thanks.,Thanks for nothing!
