Identify the aspects of finance that you feel you understand best after taking this course. What are some areas in which you believe you may need more training in the future? Explain why you have chosen both the aspects you understand and those you feel require more training and/or information.

MBA 6400 Case Study #1

Short-term investment returns: money market instruments Part of your responsibilities as a junior financial analyst is researching and identifying potential short-term liquid investment options for your firm. These investment vehicles are at times used by the firm during periods when their cash inflows exceed projections. The firm, at times, uses excess cash to purchase short-term debt instruments providing a low, but safe marginal return on invested capital.

Your Director, who reports to the firm's Chief Financial Officer (CFO) has come to you seeking your recommendation on short-term investment options for the upcoming year. The Director has asked for recommendations and a report illustrating your optimal analysis for investing $2.5m of excess cash.  

Current background info: We have a potential impending compound money market problem: The U.S. is issuing more debt, in part due to the recent tax cuts. Simultaneously, the Fed, China, Japan and to a lesser degree Russia have been reducing their holdings of U.S. Debt. Therefore, if the U.S. Treasury Department can't get entities to their positions holding U.S. debt, then the pressure to increase interest rates to make newly issued securities attractive increases. Increased interest rates at the Treasury means securities prices fall with cascading impacts.

Therefore, the current interest rate environment is one where rates are expected to increase.

The analysis report to be presented to the Director is to include:

1. Your concise statement and recommendation of the specific short-term investment options that meets the firm's criteria.

2. A detailed summary of the investment asset and the parameters you will use in which to base your recommendation.

3. A detailed description of the upside and downside risk of each investment. The latter is of particular importance as the firm may decide to manage excess cash in one or more vehicles for longer than one year.

4. Source identifier for all investment selections

a. Example: website URL

5. A spreadsheet (embedded into the report) illustrating the following:

a. Asset category/classification

b. Specific money market instrument identifier i. Example: U.S. Treasury CUSIP

6. EAR for each investment

7. YTM for each investment

a. If held to maturity

b. If sold at the end of 12 months

8. Total return for investment portfolio if held to maturity

9. Spreadsheet model is to include all cell-based formulas for all calculations Your conclusion is to summarize the recommendation made in item #1 above Format for report.

Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze 2 proposed capital investments--Project X and Project Y. Each project requires a net investment layout of $10,000 and the cost for each project is 12%. The projects expected net cash flows are as follows?

Calculate each project's payback period, net present value, and internal rate of return

Calculate each project's payback period, net present value, and internal rate of return

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $860 per set and have a variable cost of $460 per set. The company has spent $156,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,100 sets of its high-priced clubs. The high-priced clubs sell at $1,160 and have variable costs of $760. The company will also increase sales of its cheap clubs by 11,600 sets. The cheap clubs sell for $500 and have variable costs of $260 per set. The fixed costs each year will be $9,160,000. The company has also spent $1,170,000 on research and development for the new clubs. The plant and equipment required will cost $29,120,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,360,000 that will be returned at the end of the project. The tax rate is 35 percent, and the cost of capital is 12 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) NPV

Best-case $ Worst-case $

Explain at least two factors that limit the Federal Reserve’s ability to have complete control over market interest rates.

1. The market expects inflation to do the following: remain at 1% for the next year and then increase to 2% for the next two years.
   1. What is the inflation premium for a 1-year security?
   2. For a 3-year security?
   3. If the real risk-free rate is 4% and the maturity risk premium is 0, what is the yield on a 1-year Treasury bond?
   4. A 3-year Treasury bond?

Jason has just bought a bond that pays 2% annual coupons with $1,000 face value and 30 years to maturity.

(a) If the yield of the bond bought today was 3%, what was its purchase price?

(b) One year later, the bond's YTM has dropped to 2.5%. If you sell the bond immediately after receiving the coupon, i) what is the bond’s current yield? ii) what is the bond’s capital gains yield (CGY)? iii) what is the bond’s total (holding period/1-year total) yield? (1 mark)

(c) Now suppose another year has passed and the bond’s YTM remains unchanged at the previous year’s (Year one) level. If you sell the bond immediately after receiving the second year’s coupon, calculate i) the 2-year CGY ii) the total interest incomes (coupon and reinvestment of coupons) for the two years iii) the 2-year holding period/total yield.

Your firm is contemplating the purchase of a new $481,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $46,800 at the end of that time. You will be able to reduce working capital by $65,000 (this is a one-time reduction). The tax rate is 33 percent and your required return on the project is 18 percent and your pretax cost savings are $142,350 per year.

What is the NPV of this project?

What is the NPV if the pretax cost savings are $197,750 per year?

At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Look up the beta value for three publicly traded corporations operating in the same industry. Create a small table reporting your findings. Now choose three publicly-traded companies in very different industries and add these results to your table. Discuss your expectations for the similarities or differences in betas within the two categories, and then discuss how the results in your table compare to your expectations. Upload your work.

What is asymmetric information? how does it affect the prioritization of financing sources under the pecking order hypothesis?

a) A loan has a stated annual rate of 15.07%. If the loan payments are made monthly and interest is compounded monthly, what is the effective annual rate of interest?
b) You invest $460.00 at the beginning of every year and your friend invests $460.00 at the end of every year. If you both earn an anual rate of return of 11.07%, how much more money will you have after 15.0 years?
c) You currently have $3,531.00 in a retirement Savings account that earns an annual return of 10.16%. You want to retire in 49 years with $1,000,000. How much more do you need to Save at the end of every year to reach your retirement goal?
d) You currently owe $2,085.00 of your credit card that charges an annual interest rate of 19.42%. You make $152.00 of new charges every month and make a paayment of $269.00 every month. What will your credit card balance be in three months?
e)You would like to retire in 27 years. The expected rate of inflation is 1.44% per year. You currently have a standard of living that requires $9.690.00 of monthly expenses. Assuming you want to maintain the same standard of living in retirement, what are your monthly expenses expected to be the first year of retirement?

Choosing a career in business finance means that you will have an opportunity to work in just about any field you can imagine. Your compensation would vary depending on your education, certifications, specialization and experience. Go to a job posting or career site and research jobs that require a degree or experience in business financial management. The following questions will be addressed in our discussion:

• What kind of jobs can you get with an financial degree?
• What are other non-traditional jobs besides business finance that someone with an accounting background could do?
• What salary would you expect to receive?
• What are the pros of choosing a career in business finance?

Select one transformational attribute of your chosen leader that positively affected the leader's organization. jeff bezos How did your leader illustrate this attribute? Use your own research to explain how the transformational leader's performance and behaviors impact his or her organizational roles and functions. Respond to at least two of your classmates' posts, reflecting on the importance of transformational attributes. Here are some suggested topics for discussion: Do you think these attributes are critical for successful leadership? Why or why not? Can anyone learn these behaviors, or are they innate aspects of one's personality? What attribute did you particularly identify with or rate as more important than the others? Why?