Strategic Initiatives and CSR

Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company’s current sales revenue is $2,100,000. Currently, the company’s gross profit is 35% of sales, but the company’s target gross profit percentage is 40%. The company’s current monthly cost of production is $1,365,000. Of this cost, 60% is for labor, 20% is for materials, and 20% is for overhead.

The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The makeup of the costs of production for Procedure 2 is currently 50% direct labor, 20% direct materials, and 30% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2.

1. Determine what the cost of labor, materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales.

Cost makeup of Procedure 1:

Cost makeup of Procedure 2:

2. The company’s actual direct materials cost is $390,600 for Procedure 1. Determine the actual cost of direct labor, direct materials, and overhead for each procedure, and the total cost of production for each procedure.

Cost makeup of Procedure 1:

Cost makeup of Procedure 2:

3. The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure 2. These indirect materials normally make up 60% of the overhead cost for Procedure 2, but the CSR initiative would reduce the usage of indirect materials. Determine what the maximum new cost of these indirect materials could be for Procedure 2 if this CSR initiative is expected to enable the company to meet its target gross profit percentage (holding all other costs constant).

Maximum new cost of P2 overhead materials:
$

1. Verizon’s free cash flows to the firm are projected to be as follows for the next 5 years (all figures in billions):

How will your confidence in these assumptions change which model you listen to? For instance, if you were 60% confident of your assumptions for each of the P/E, DDM, and DCF models, which one would you rely on? Think about how much a change in your assumptions changes share prices. There isn’t necessarily a mathematically correct answer to this last question. There is, however, an economically reasonable way to justify your thinking regardless of the model you choose to rely on. The internal consistency between what you pick and how you justify it will matter. Would your decision change if you were 60%, 70%, and 80% of the three models, respectively (i.e. less confident of your assumptions for the P/E model relative to the other two)?

You want to buy a $218,000 home. You plan to pay 10% as a down payment, and take out a 30 year loan at 6% interest for the rest.

a) How much is the loan amount going to be?

$

b) What will your monthly payments be?

$

c) How much total interest do you pay?

$

d) Suppose you want to pay off the loan in 15 years rather than 30. What will your monthly payment be?

$

e) How much money in interest will you save if you finance for 15 years instead of 30 years?

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.8%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.1313.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.8%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.1313.

What is the Sharpe ratio of the best feasible CAL?

) Dog Up! Franks is looking at a new sausage system with an installed cost of $411,500. This cost will be depreciated straight-line to zero over the project's seven-year life, at the end of which the sausage system is expected to be sold for $35,000 cash. No bonus depreciation will be taken. The sausage system will save the firm $129,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $22,500. All of the net working capital will be recovered at the end of the project. The tax rate is 23 percent and the discount rate is 13.2 percent. What is the net present value of this project

P.S How to calculate NPV, explanations needed!!!

Pearl Corp. is expected to have an EBIT of $2,200,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $95,000, and $135,000, respectively. All are expected to grow at 18 percent per year for four years. The company currently has $11,500,000 in debt and 950,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 2.5 percent indefinitely. The company’s WACC is 8.7 percent and the tax rate is 24 percent.

What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.0%. The probability distributions of the risky funds are:   

The correlation between the fund returns is .0500.

Suppose now that your portfolio must yield an expected return of 9% and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

As the financial manager of Corton Inc., you are investigating a possible acquisition of Denham. You have the basic data given in the following table.

You estimate that investors expect a steady growth of about 6% in Denham’s earnings and dividends. Under new management, this growth rate would be increased to 8.53% per year without the need for additional capital.

Required:

1. What is the gain from the acquisition?
2. What is the cost of the acquisition if Corton pays $25 in cash for each share of Denham?
3. What is the cost of the acquisition if Corton offers one share of Corton for every three shares of Denham?
4. How would the cost of the cash offer change if the expected growth rate of Corton was not changed by the merger?
5. How would the cost of the share offer change if the expected growth rate was not changed by the merger?

(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 4.0%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.13.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.)

Refer to the following information:

a. The ATAM bond was issued on June 1, 2011, at 101.00%. How much would you have to pay to buy one bond delivered on June 15? Don’t forget to include accrued interest. Assume a 365-day year. (Do not round intermediate calculations. Enter your answer as a percent of par rounded to 3 decimal places.)

b-1. When is the first interest payment on the bond?

b-2. What is the total dollar amount of the payment? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c-1. On what date do the bonds finally mature?

c-2. What is the amount to be paid on each bond at maturity? (Do not round intermediate calculations. Enter your answer to 2 decimal places.)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.6%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.0800.

What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  Using a cost of capital of 10​%, calculate the net present value for the project shown in the following table and indicate whether it is​ acceptable

Initial investment   $-1,147
Year   Cash inflows
1   $84
2   $138
3   $187
4   $257
5   $311
6   $375
7   $274
8   $98
9   $49
10   $24

The net present value​ (NPV) of the project is ____