Proposal 1

Pay the family of Boone $300,000 a year for the next 20 years, and $500,000 a year for the remaining 20 years.

Proposal 2

Pay the family a lump sum payment of $5 million today.

Proposal 3

Pay the family of Boone a relatively small amount of $50,000 a year for the next 40 years, but also guarantee them a final payment of $75 million at the end of 40 years.

In order to analyze the present value of these three proposals, attorney Knox Hollister called on a financial expert to do the analysis. You will aid in the process.

Required

1. Assume a discount rate of 6 percent is used, which of the three projects has the highest present value?

In analyzing the first proposal, take the present value of the

20-year $300,000 annuity. Then take the present value of

the deferred annuity of $500,000 that will run from the 21st through the 40th year. The answer you get for the second annuity will represent the value at the beginning of the 21st year (the same as the end of the 20th year). You will need to discount this lump sum value back for 20 years as a single amount to get its present value. You then add together the present value of the first and second annuity.

The second and third proposals are straightforward and require no further explanation.

2. Now assume that a discount rate of 11 percent is used instead of

6 percent. Which of the three alternatives provides the highest present value?

3. Explain why the change in outcome takes place between question 1 and question 2.

4. If Knox Hollister thinks additional punitive damages are likely to be $4 million in a jury trial, should he be more likely to settle out-of-court or go before the jury?

What id FCF, how is it calculated, and why is it important to existing and prospective financial stakeholders?  What is NOPAT and how is it calculated? What are EBIT and EBITDA and how are they calculated?

What is EVA and how is it calculated?  What are some of its attributes? How does it compare with other similar metrics

What is the WACC and how is it calculated?  Are there any other names a company might use for metrics used by the company and based on the WACC?  In what calculations/analyses might a company use the WACC? How are the cost of debt and cost of equity calculated?  Include in your discussion taxes, RATE, and CAPM

Personal selling likely to be

MOST

important when:

- the distribution network is well established (as opposed to poorly established).

- prices are negotiable (instead of fixed list prices) because of industry competition.

- the product is simple (as opposed to complex), requiring no demonstration.

- the target market is composed of thousands of small customers (as opposed to 50 large customers).

Kay was widely recognized in her firm and the industry as a superb leader and sales manager. The reps who

worked for her talked about her ability to motivate the sales force based on:

- the industry standards, which she had helped create

- the firm’s policies and procedures

- what was most important to each individual

- the sales contests she created which were always fair and always had a vacation at an exotic resort as a

prize

Which of the following best describes a salesperson who would be categorized as a value spendthrift?

- concedes on price in order to quickly close sales deals

- regularly gains more business at the same price

- believes management pursues a value-driven strategy

- documents claims to customers about superior monetary value

Which is

NOT

an advantage of a territorial sales force structure?

- Accountability is clearly defined for each salesperson.

- Each salesperson’s job is clearly defined.

- Salespeople have the opportunity and incentive to build strong relationships with customers.

- Salespeople develop in-depth knowledge of a product line.

Which explains why many firms have adopted the team selling approach to service large, complex accounts?

- Products have become too complicated for one salesperson to support.

- Customers prefer dealing with many salespeople rather than one salesperson.

- Salespeople prefer working in groups because of the opportunity for flex hours and job sharing.

- A group of salespeople assigned to one account is cost effective for corporations.

A potential drawback of using the latest sales technologies to make sales presentations and service accounts?

- Salespeople are more likely to use a “one-size-fits-all” selling approach.

- The cost of the technology outweighs any savings gained in eliminating the need for travel.

- The systems can intimidate some clients and salespeople, making them uncomfortable with the process.

- The technologies limit the degree of creativity a salesperson can use in making sales presentations.

Management uses the workload approach to ________.

- set the size of the sales force

- determine product availability

- identify desirable characteristics of the sales force

- establish sales quotas

Which activity is

NOT

typical for a sales assistant?

- call ahead and confirm appointments

- determine price points

- complete administrative tasks

- follow up on deliveries

An advantage of the straight commission compensation plan is that it:

- minimizes fluctuations in salesperson’ earnings.

- stimulates missionary selling, i.e., seeking out new customers.

- reduces the cost of selling as a percentage of net sales.

- encourages the salesperson to sell aggressively.

Briefly describe three methodologies that might be used to approximate the value of a company.  Be sure to include a general description of how one should perform the calculations and what relevant data should be assembled and used

What are some of the uses of ratio analysis?  Select 5 ratios, show how they are computed, and explain what might cause the ratios financially and/or operationally to both decrease and decrease.

Discuss how cash, accounting, and financial breakeven are calculated.  Be sure to include the advantages/disadvantages of each. Also, discuss how NPV and IRR are calculated in Excel.  What are the required inputs to each?

Solar Co. is evaluating a proposal to build a new solar plant. The new plant costs $225 million today (at t = 0), and the expected salvage value of the plant in eight years is $43 million (at t = 8). Based on these assumptions, the NPV of this project is $20 million. Now suppose the project team made an error, and the expected salvage value of the plant is zero in eight years (at t = 8). By how much would the NPV of the project change, assuming the salvage value is zero? The CCA rate for the solar plant is 40%. Solar Co. has a corporate tax rate of 37% and a required rate of return of 15%.

A homeowner can obtain a $250,000, 30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. If you will keep the mortgage for 30 years, what is the net present value of paying the points (to the nearest dollar)?

A. $9,475
B. $8,360
C. $7,564
D. $7,222

using BAII Plus
E. $6,578

How does one common size the income statement and the balance sheet?  What is the purpose(s) of doing so and what types of financial/operational information can be gleaned?

What role did financial institutions play in the financial crisis of 2007/2008?

6.

What type of stock has a limitation on voting rights?

7.

What is a contract that results in receiving payments forever (does not have an end date)?

GreenBike considering expanding its bike share factory expansion. The expansion will require new equipment costing $800,000 that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated salvage value of the equipment is $150,000. The project requires $60,000 initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $250,000 a year. What is the net present value of this project if the relevant discount rate is 16% and the tax rate is 28%?

acme corporation is considering a project to make gizmos. the cash flow would be 425000 per year. the project cost is 2.6 million and no matter when the project is started, gizmos would become obsolete in 10 years. hoever, the rechnology to produce gizmos is becoming cheaper by the year and the project costs are likely to decline by 230000 per year until it reaches 1.45 million, after which there would be no more reduction in prject cost acme's required return is 12% should the project be undertaken and if so, when