As an investor what are factors of Risk and Return.

Find the final amount in the following retirement​ account, in which the rate of return on the account and the regular contribution change over time.

​$614 per month invested at 4​%, compounded​ monthly, for 4​years; then $716per month invested at 7%,

compounded​ monthly, for 4 years. What is the amount in the account after 8

​years?

2. A contractor has a contract to remove and replace the existing landscape and
sidewalks around an office building. The work includes demolition of the
existing landscaping and sidewalks, importing fill and grading around the
office building, constructing new concrete sidewalks, and new landscaping.
The contractor uses the cost codes in Figure 2-6. The original estimate for the
demolition was $30,000 and a $5,000 change order has been approved to
remove some unexpected debris found during the demolition. The
demolition work has been completed at a cost of $33,562. The original
estimate for the fill and grading was $17,500 and a $2,000 change order for
importing additional fill to replace the debris has been approved. The fill and
grading costs to date are $17,264 and the cost to complete has been
estimated at $2,236. The original budget for the labor to pour the concrete
was $19,200 and no changes have been made. The concrete labor has been
subcontracted out for $19,200, for which the contractor has received a bill
for $15,200. The original budget for the concrete for the sidewalks was
$9,900 and no changes have been made. The contractor has spent $7,425 for
concrete and estimates that $1,950 of concrete will be needed to complete
the project. The original estimate for the landscaping was $37,500 and no
changes have been made. The landscape work has been subcontracted out for
$37,500. The landscaping work has yet to start and no bills have been
received. Determine the total estimated cost at completion for the project
and the variance for each cost code.

6. Create a spreadsheet to solve Problem 2.

"A borrower is interested in comparing the monthly payments on two otherwise equivalent 30 year FRMs. Both loans are for $100,000 and have a 3.35% interest rate. Loan 1 is fully amortizing, where as Loan 2 has negative amortization with a $120,000 balloon payment due at the end of the life of the loan. How much higher is the monthly payment on loan 1 versus loan 2? (Hint: calculate both payments and take the difference. Only the future values of the loans are different. Round your answer to two decimal places.)"

Focus and observe the events from 2012 – 2013 in Dell’s MBO. What financial and non-financial factors lead to Michael Dell’s MBO victory in Sept. 12, 2013?

Tax Savings and Costing (The Case of Transfer Pricing)

Please prepare a report answering the listed questions. You may Excel to create spreadsheets and copy the answers to this document.

Hansen, Kotter, and Zales is a law firm that contains one service department (Research & Document) and two production departments (Litigation and Consulting). The firm employs a job-order costing system to accumulate costs chargeable to each client. The firm uses actual costing to assign overhead. General overhead costs can be allocated based on either direct attorney hours or the number of employees, depending on managers’ choice. At the end of the year, the records revealed the actual general overhead costs are $720,000. At the end of the year, the records revealed the following costs and operating data for all cases handled during the year:

*** 50% of Research & Department's service is provided to litigation department and the other 50% to consulting department.

Part I Cost Allocation

1. (1.5 point) Compute the overhead allocation rates for general overhead based on different cost drivers. What are the overhead costs assigned to each department, using different cost drivers?

Overhead allocation based on direct attorney hours

                             Research and development |      Litigation      |       Consulting       | Total

Direct attorney hours                     3,000                              8,000                        5,000                 16,000

Percentage of total                        18.75%                           50%                        31.25%

Allocated overhead cost                 $135,000                   $360,000                  $225,000

Overhead allocation based on number of employees

                             Research and development |      Litigation      |       Consulting       | Total

Number of employees                       10                                    8                               6                        24

Percentage of total                        41.67%*                        33.33%                     25%

Allocated overhead cost                 $300,000                   $240,000                  $180,000

*rounded answer but to calculate allocated overhead cost I used (10/24)*720,000 so I would get an exact answer, I just rounded 299,999.999999 to 300,000

2. (1.5 point) Compare the total costs of each production department after departmental cost allocation, using attorney hours and the number of employees as cost driver, respectively. Does the choice of cost driver affect the total costs of each production department?

Overhead cost of production departments using different cost drivers

Based on attorney hours

                                                Litigation                     |            Consulting

Allocated costs                            $360,000                                   $225,000

Research & Development              +67,500                                     +67,500

Total Overhead Costs                     $427,500                                   $292,500

Based on number of employees

                                                Litigation                     |            Consulting

Allocated costs                            $240,000                                   $180,000

Research & Development             +150,000                                  +150,000

Total Overhead Costs                     $390,000                                   $330,000

To answer your question simply: yes, choice of cost driver does affect the costs of each production department.

• Litigation has a total overhead cost of $427,500 when allocating based on attorney hours and has a total overhead cost of $390,000 when allocating based on number of employees.
• Consulting has a total overhead cost of $292,500 when allocating based on attorney hours and has a total overhead cost of $330,000 when allocating base on number of employees.

Assume that the company uses attorney hours to allocate general overhead costs. For litigation department, the costs charged to each case are made up of four elements:

• Direct attorney costs (charged at $50 per hour)
• Direct materials and supplies used
• General overheads are applied by direct attorney hours
• Costs allocated from the service department is assigned to cases by direct attorney hours incurred within the department

The information on one of its cases during this period is given as follows:                                                              

                                                                        Case 618

Direct attorney-hours                                    150           

Direct Materials and supplies                   $5000           

c. (1.5 point) What are the total costs accumulated for Case 618? The company charged the client $30,000 for the service, what is the profit the company earned?

d. (0.5 point) Suppose the firm’s annual revenue is 2 million dollars. The corporate tax rate is 35%. How much taxes shall the company pay? Does the choice of cost driver affect the total taxes due?

Journalizing and Posting Transactions and Adjustments D. Roulstone opened Roulstone Roofing Service on April 1. Transactions for April follow.

Using the following accounts: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Trucks; Accumulated Depreciation-Trucks; Equipment; Accumulated Depreciation-Equipment; Accounts Payable; Unearned Roofing Fees; Common Stock; Roofing Fees Earned; Fuel Expense; Advertising Expense; Wages Expense; Insurance Expense; Supplies Expense; Depreciation Expense-Trucks; and Depreciation Expense-Equipment.

b. Record these transactions for April using journal entries.

Post the above journal entries from part b. to their T-accounts.

Enter transactions in the T-accounts in the order they appear, using the first available answer box on the appropriate side of the T-account.

• Record insurance expense for April.
• Supplies still available on April 30 was $200.
• Record depreciation expense of $125 for truck for April.
• Record depreciation expense of $35 for equipment for April.
• One-fourth of roofing fee received April 5, was earned by April 30.

A company currently pays a dividend of $4 per share (D0= $4). It is estimated that the company’s dividend will grow at a rate of 10% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company’s stock has a beta of 1.6, the risk-free rate is 4% and the market risk premium is 2%. What is your estimate of the stock’s current price?

The present value of a perpetuity, with the first cash flow paid in 5 years’ time, is equivalent to the present value of $150,000 that is to be paid in 14 years’ time. The perpetuity and the lump sum have a required rate of return of 10%. What is the annual cash flow associated with the perpetuity?

Twin Falls Community Hospital is a 250-bed, not-for-profit hospital located

in the city of Twin Falls, the largest city in Idaho’s Magic Valley region

and the seventh largest in the state. The hospital was founded in 1972 and

today is acknowledged to be one of the leading healthcare providers in the

area.

Twin Falls’ management is currently evaluating a proposed ambulatory

(outpatient) surgery center. Over 80 percent of all outpatient surgery is

performed by specialists in gastroenterology, gynecology, ophthalmology,

otolaryngology, orthopedics, plastic surgery, and urology. Ambulatory surgery

requires an average of about one and one-half hours; minor procedures take

about one hour or less, and major procedures take about two or more hours.

About 60 percent of the procedures are performed under general anesthesia, 30

percent under local anesthesia, and 10 percent under regional or spinal

anesthesia. In general, operating rooms are built in pairs so that a patient

can be prepped in one room while the surgeon is completing a procedure in the

other room.

The outpatient surgery market has experienced significant growth since the

first ambulatory surgery center opened in 1970. This growth has been fueled

by three factors. First, rapid advancements in technology have enabled many

procedures that were historically performed in inpatient surgical suites to

be switched to outpatient settings. This shift was caused mainly by advances

in laser, laparoscopic, endoscopic, and arthroscopic technologies. Second,

Medicare has been aggressive in approving new minimally invasive surgery

techniques, so the number of Medicare patients utilizing outpatient surgery

services has grown substantially. Finally, patients prefer outpatient

surgeries because they are more convenient, and third-party payers prefer

them because they are less costly.

These factors have led to a situation in which the number of inpatient

surgeries has grown little (if at all) in recent years while the number of

outpatient procedures has been growing at over 10 percent annually and now

totals about 22 million a year. Rapid growth in the number of outpatient

surgeries has been accompanied by a corresponding growth in the number of

outpatient surgical facilities. The number currently stands at about 5,000

nationwide, so competition in many areas has become intense. Somewhat

surprisingly, there is no outpatient surgery center in the Twin Falls area,

although there have been rumors that local physicians are exploring the

feasibility of a physician-owned facility.

The hospital currently owns a parcel of land that is a perfect location for

the surgery center. The land was purchased five years ago for $350,000, and

last year the hospital spent (and expensed for tax purposes) $25,000 to clear

the land and put in sewer and utility lines. If sold in today’s market, the

land would bring in $500,000, net of realtor commissions and fees. Land

prices have been extremely volatile, so the hospital’s standard procedure is

to assume a salvage value equal to the current value of the land.

The surgery center building, which will house four operating suites, would

cost $5 million and the equipment would cost an additional $5 million, for a

total of $10 million. The project will probably have a long life, but the

hospital typically assumes a five-year life in its capital budgeting analyses

and then approximates the value of the cash flows beyond Year 5 by including

a terminal, or salvage, value in the analysis. To estimate the terminal

value, the hospital typically uses the market value of the building and

equipment after five years, which for this project is estimated to be $5

million, excluding the land value.

The expected volume at the surgery center is 20 procedures a day. The average

charge per procedure is expected to be $1,500, but charity care, bad debts,

insurer discounts (including Medicare and Medicaid), and other allowances

lower the net revenue amount to $1,000. The center would be open five days a

week, 50 weeks a year, for a total of 250 days a year. Labor costs to run the

surgery center are estimated at $800,000 per year, including fringe benefits.

Supplies costs, on average, would run $400 per procedure, including

anesthetics. Utilities, including hazardous waste disposal, would add another

$50,000 in annual costs. If the surgery center were built, the hospital’s

cash overhead costs would increase by $36,000 annually, primarily for

housekeeping and buildings and grounds maintenance.

One of the most difficult factors to deal with in project analysis is

inflation. Both input costs and charges in the healthcare industry have been

rising at about twice the rate of overall inflation. Furthermore,

inflationary pressures have been highly variable. Because of the difficulties

involved in forecasting inflation rates, the hospital begins each analysis by

assuming that both revenues and costs, except for depreciation, will increase

at a constant rate. Under current conditions, this rate is assumed to be 3

percent. The hospital’s corporate cost of capital is 10 percent.

When the project was mentioned briefly at the last meeting of the hospital’s

board of directors, several questions were raised. In particular, one

director wanted to make sure that a risk analysis was performed prior to

presenting the proposal to the board. Recently, the board was forced to close

a day care center that appeared to be profitable when analyzed but turned out

to be a big money loser. They do not want a repeat of that occurrence.

Another director stated that she thought the hospital was putting too much

faith in the numbers: “After all,” she pointed out, “that is what got us into

trouble on the day care center. We need to start worrying more about how

projects fit into our strategic vision and how they impact the services that

we currently offer.” Another director, who also is the hospital’s chief of

medicine, expressed concern over the impact of the ambulatory surgery center

on the current volume of inpatient surgeries

To develop the data needed for the risk (scenario) analysis, Jules Bergman,

the hospital’s director of capital budgeting, met with department heads of

surgery, marketing, and facilities. After several sessions, they concluded

that only two input variables are highly uncertain: number of procedures per

day and building/equipment salvage value. If another entity entered the local

ambulatory surgery market, the number of procedures could be as low as 15 per

day. Conversely, if acceptance is strong and no competing centers are built,

the number of procedures could be as high as 25 per day, compared to the most

likely value of 20 per day. If real estate and medical equipment values stay

strong, the building/equipment salvage value could be as high as $7 million,

but if the market weakens, the salvage value could be as low as $3 million,

compared to an expected value of $5 million. Jules also discussed the

probabilities of the various scenarios with the medical and marketing staffs,

and after a great deal of discussion reached a consensus of 70 percent for

the most likely case and 15 percent each for the best and worst cases.

Assume that the hospital has hired you as a financial consultant. Your task

is to conduct a complete project analysis on the ambulatory surgery center

and to present your findings and recommendations to the hospital’s board of

directors. To get you started, Table 1 contains the cash flow analysis for

the first three years.

Table 1

Partial Cash Flow Analysis

0 1 2 3

Land opportunity cost ($500,000)

Building/equipment cost (10,000,000)

Net revenues $5,000,000 $5,150,000 $5,304,500

Less: Labor costs 800,000 824,000 848,720

Utilities costs 50,000 51,500 53,045

Supplies 2,000,000 2,060,000 2,121,800

Incremental overhead 36,000 37,080 38,192

Net income $2,114,000 $2,177,420 $2,242,743

Plus: Net land salvage value

Plus: Net building/equipment salvage value

Net cash flow ($10,500,000) $2,114,000 $2,177,420 $2,242,743

5. Conduct a scenario analysis. What is its expected NPV? What is the worst and

best case NPVs? How does the worst case value help in assessing the

hospital’s ability to bear the risk of this investment?

What is the profitability index for an investment with the following cash flows given a 8 percent required return?
      

1.06

1.07

1.04

1.00

1.01