Write a “bad news” memo to a group of employees in response to this scenario: You are the Human Resources Director at Natural Beauty Cosmetics, a manufacturer of multiple cosmetics lines sold across the globe. Your headquarters and manufacturing plant are in Syracuse, New York, and all told, the company employs 250 people. Many of your employees have degrees in chemistry and other product development fields. Over the past five years, your sales have declined by 6%, as your market has become more dominated by more inexpensive products from overseas. At best, your company projects sales to be flat over the next few years. Additionally, your company’s payments to provide health care for your employees have gone up by 18% since 2013. Until now, Natural Beauty Cosmetics has covered the entire cost of health care, but now your company has been forced to ask employees to pay 25% of their premiums. To explain these changes, your Assistant Director of HR, Marylou Masters will hold a meeting with affected employees at 4 p.m. on Wednesday, November 4 in Room 223 to discuss the new plan, answer any questions, and explain in detail which cost-cutting options, such as choosing a less expensive plan with higher deductibles, will be available. Asking employees to pay for their health care will have a number of benefits. It will help the company remain viable for the foreseeable future, and it will allow the company to keep everyone employed at the Syracuse headquarters. Everyone will still be able to keep his or her current level of medical coverage, and co-pays for any treatment will stay the same. Because this is a difficult decision, and you know that your most-talented employees may be tempted to look for work elsewhere, you are convinced that a face-to-face meeting will ensure that your employees choose the best option for themselves and their families. To make sure that everyone is aware of the meeting, your company will send this memo internally to all of the employees, informing them of the increase in premium payments as well as the meeting.

Question 2 A bank has $100 million of investment grade bonds with a duration of 8.0 years. This bank also has $500 million of commercial loans with a duration of 5.0 years. This bank has $300 million of consumer loans with a duration of 2.0 years. This bank has deposits of $600 million with a duration of 1.0 years and nondeposit borrowings of $100 million with an average duration of .25 years. What is this bank's duration gap? These are all of the assets and liabilities this bank has. A. This bank has a duration gap of 3.44 years B. This bank has a duration gap of 3.75 years C. This bank has a duration gap of 5.15 years D. This bank has a duration gap of 3.64 years E. This bank has a duration gap of 13.75 years

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Mary Simpson who is an assistant to Leigh Jones, the financial vice president is asked to estimate Harry Davis’s cost of capital. Jones provides Simpson with the following data.

1. The firm’s tax rate is 40%.

2. The firm has 10% annual coupon bonds with 15 years remaining to maturity. The current price of the bond is $1, 096.26. The bond’s yield-to-maturity is 8.82%.

3. The firm’s balance sheet shows $100 million long-term debt and $300 million common equity.

Simpson estimates the market risk premium as the historical average return on stocks minus the current return on Treasury bonds and obtains a 15.4% of the cost of common stock based on the CAPM.

Simpson calculates the firm’s weighted average cost of capital (WACC) as follows:

Weight of long-term debt is .25 (=100/400)

Weight of common equity is .75 (=300/400)

WACC = .25 x 10% x (1 - .4) + .75 x 15.4% = 13.05%

1. Find problems inherent in Simpson’s WACC calculation.

2. What can you suggest to solve problems found in Question 1?

3. Simpson used the CAPM to estimate the cost of common stock. What can you propose to get the best estimate for the cost of common stock?

4. How confident can you be with the WACC based on solutions you suggested through the evaluative process in terms of the firm’s divisions and projects? What issues should be considered?

Corporate ownership varies around the world. Historically, individuals have owned the majority of shares in public corporations in the United States. In Canada this is also the case, but ownership is more often concentrated in the hands of a majority shareholder. In Germany and Japan, banks, other financial institutions, and large companies own most of the shares in public corporations. How do you think these ownership differences affect the severity of agency problems in different countries?

A _______ trading strategy involves taking a position in two or more options of the same type (i.e. two or more calls or two or more puts)

7. You are a member of the senior executive group at your company. The company has a reputation of compensating its executives at a very high level. In fact your own compensation appears to be at least 50% above that of your peers in like companies. Due to pressure from the founder who has a controlling interest in the company and now lives in another state the company is considering developing an incentive system for all employees who other than the executives are paid significantly below the levels of peer companies. You have been able to achieve this pay structure due to the limited other job opportunities in the immediate area. In addition to concentrating compensation at the top of the org chart most decisions are also made at the highest levels and little or no planning or financial information is shared outside this group. You recently received input from a group of investors who are very vocal and have accumulated a significant amout of stock in your company. They feel that overall employee pay, the salary and benefits line on the income statement, in total is excessive and they are demanding this issue be addressed. You have been considering stock options, profit sharing and cash bonuses as alternatives for an employee incentive system. 1) Given these facts and the culture in your company and the pressure from investors and the founder discuss these two alternatives for an incentive system.

2) Which would you recommend and how would you fund the program?

Net present value: Franklin Mints, a confectioner, is looking to purchase a new jellybean-making machine at a cost of $312,500. The company management projects that the cash flows from this investment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? can you answer in excel format please

Suppose Chance Chemical Products management conducts a study and concludes that if it expands into a consumer products division (which is less risky than its primary business of industrial chemicals), the firm's beta would decline from 1.2 to 0.9.  However consumer products have a somewhat lower profit margin, and this would cause Chance's constant growth rate in earnings and dividends to fall from 7 to 5 percent. Should management undertake this change assuming that the average market return is 12% will the rate on Treasury notes is 9%?  Chance has just paid a dividend of $2.

Write your recommendation taking into account some of the general issues involved in the assessment (eg. principles involved in company diversification, estimation of beta's etc.)

Describe impacts on the 3 financial statements (balance sheet, income statement and cash flow statement) of:

a. An increase of accounts receivables by $100 b. An increase of accrued expenses by $100
c. A decrease of prepaid expenses by $100
d. An increase in inventory by $100 (paid in cash)

e. An increase in depreciation by $100

f. A sale of equipment for $200 (value on the balance sheet: $170)

Remark: consider all above questions as independent of each other.

You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows:

Expected sales: 30,000 units per year

Unit price: $50

Variable cost: $30

Fixed cost: $300,000

The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 30%, and the required rate of return is 12%.

However, you recognize that some of these estimates are subject to error. Sales could fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $40. The good news is that fixed costs could be as low as $200,000, and variable costs would decline in proportion to sales.

a. What is project NPV if all variables are as expected? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount.)

b. What is NPV in the worst-case scenario? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount. Negative amount should be indicated with a minus sign.)

Look at the cash flows for projects F and G given below.

The cost of capital was assumed to be 10%. Assume that the forecasted cash flows for projects of this type are overstated by 8% on average. That is, the forecast for each cash flow from each project should be reduced by 8%. But a lazy financial manager, unwilling to take the time to argue with the projects’ sponsors, instructs them to use a discount rate of 18%.

a. What are the projects’ true NPVs? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

b. What are the NPVs at the 18% discount rate? (Do not round intermediate calculations. Round your answers to nearest dollar amount.)

You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following: (a) The present value of two years’ back pay. The plaintiff’s annual salary for the last two years would have been $36,000 and $39,000, respectively. (b) The present value of five years’ future salary. You assume the salary will be $43,000 per year. (c) $100,000 for pain and suffering. (d) $15,000 for court costs. Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is an EAR of 8 percent, what is the size of the settlement?