Identify the tools and techniques available to managers in the area of forecasting and planning. Discuss how you will use these tools to forecast sales and prepare a financial plan for your company?

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The truck's basic price is $275,000, and it will cost another $25,000 to modify it for special use by your firm. The truck falls into the MACRS three-year class, and it will be sold after three years for

$50,000. Use of the truck will require an increase in net operating working capital

(spare parts inventory) of $25,000. The truck will have no effect on revenues, but it is expected to save the firm $125,000 per year in before-tax operating costs, mainly labor. The firm's cost of capital is 10% and the marginal tax rate is 35 percent. Should the company accept/reject the project?

NPV?

IRR?

MIRR?

Payback?

Decision?

Discuss the traditional argument that the firm can lower its cost of capital and increase market value of the firm using leverage and the non-traditional argument that leverage is irrelevant. Based on the understanding of the two sides, which approach will you use if you have to make a decision on capital structure in your firm.

is my answer correct ?

Distinguish between operating leases and financial leases. Would you be more likely to find an operating lease employed for a fleet of aircrafts or a manufacturing plant? Explain.

Financing Deficit

Stevens Textile Corporation's 2018 financial statements are shown below:

Balance Sheet as of December 31, 2018 (Thousands of Dollars)

Income Statement for January 1 - December 31, 2018 (Thousands of Dollars)

1. Suppose 2019 sales are projected to increase by 20% over 2018 sales. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2019. The interest rate on all debt is 8%, and cash earns no interest income. Assume that all additional debt in the form of a line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2018, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also, assume that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. Determine the additional funds needed. Do not round intermediate calculations. Round your answers to the nearest dollar.
   Total assets: $ ?????
   AFN: $ ?????
2. What is the resulting total forecasted amount of the line of credit? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $ ?????
3. In your answers to Parts a and b, you should not have charged any interest on the additional debt added during 2019 because it was assumed that the new debt was added at the end of the year. But now suppose that the new debt is added throughout the year. Don't do any calculations, but how would this change the answers to parts a and b?
   If debt is added throughout the year rather than only at the end of the year, interest expense will be (SELECT ANSWER: higher, lower) than in the projections of part a. This would cause net income to be (SELECT ANSWER: higher, lower), the addition to retained earnings to be (SELECT ANSWER: higher, lower), and the AFN to be (SELECT ANSWER: higher, lower). Thus, you would have to (SELECT ANSWER: Add in, Subtract from) new debt.

Brian runs a small corner store. Last year he had sales of $260,000. The cost of goods sold was $130,000 and depreciation was $40,000. He did not pay any interest. His taxation rate was 32.5%. His fixed (non-current) assets were valued at $250,000 at the beginning of the year. During the year he invested in some refrigeration equipment and now his fixed assets are valued at $270,000. His net working capital fell by $30,000 because Brian adopted a stricter inventory management process. How much free cash flow (FCF) has Brian's corner store generated for him this year?

Select one: a. $40,750 b. $100,500 c. $70,750 d. $32,077 e. $90,800

Financing Deficit

Garlington Technologies Inc.'s 2018 financial statements are shown below:

Balance Sheet as of December 31, 2018

Income Statement for December 31, 2018

Suppose that in 2019 sales increase by 5% over 2018 sales and that 2019 dividends will increase to $128,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2018. Use an interest rate of 10%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.

Please Answer the boxes with the Question Mark in them. Thank you!

"Freakonomics" is a best selling book on unexpected applications of economics. The authors have a website to accompany the book. On the "Freakonomics" blog, a topic of discussion was "What if We Paid Bank Regulators for Performance?" If banks fail (that is, go out of business) as many did in 2008 - 2009, the regulators would not earn much money. If the banking system is healthy, the regulators would receive a bonus.

Do you think this is a good idea or a bad idea? Why? Keep in mind that the bonuses would be for regulators, such as officials at the Federal Reserve, and not for the bank executives. Be sure to include in your discussion what the goals of financial regulation are, and how this plan would affect those goals.

AFN EQUATION

Broussard Skateboard's sales are expected to increase by 20% from $7.4 million in 2018 to $8.88 million in 2019. Its assets totaled $5 million at the end of 2018.
Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 3%, and the forecasted payout ratio is 50%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$ ????

Assume that the company's year-end 2018 assets had been $6 million. Is the company's "capital intensity" ratio the same or different?

The capital intensity ratio is measured as A₀*/S₀. Broussard's current capital intensity ratio is (SELECT ANSWER: Higher than, Lower than, equal to) that of the firm with $6 million year-end 2018 assets; therefore, Broussard is (SELECT ANSWER: Less, More, Same) capital intensive - it would require (SELECT ANSWER: A Smaller, A larger, The same) increase in total assets to support the increase in sales.

Amelia currently has $1,000 in an account with an annual rate of return of 4.3%. She wants to have $3000 for a trip to Canada when she graduates in 4 years. How much will she have to save each month to afford her trip?

AFN equation

Broussard Skateboard's sales are expected to increase by 20% from $9.0 million in 2018 to $10.80 million in 2019. Its assets totaled $2 million at the end of 2018.
Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 65%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar.

Below is a spreadsheet that has the annual return measured for 12 different stock investments. The spreadsheet shows the average return and standard deviation of the return for the past 15 years. Use this spreadsheet and spreadsheet commands to do the following:

Compute the return for each year on a portfolio that contains an equal investment in all 12 securities.

Compute the 15-year average return and standard deviation of return for the portfolio that consists of all 12 securities with equally weighted investment.

Compute the correlation and covariance between the return on company #12 and the return on the equally-weighted portfolio. Hint: There is a spreadsheet command that does this calculation.

Compute the beta of Company #12 using the information you have collected.

Now using the beta you created for Company #12, compute the required rate of return using the Capital Asset Pricing Model (CAPM), assuming that the average market return is the return of your equally-weighted portfolio and the risk-free rate of return is 2.5%.

If you were told analysts estimate that Company #12 will have a 5% rate of return next year, would you buy the stock? Why or why not?

COMPUTE ALL CALCULATIONS IN AN EXCEL SPREADSHEET AND POST IT HERE, THANK YOU

Black-Scholes Model

Assume that you have been given the following information on Purcell Industries' call options:

According to the Black-Scholes option pricing model, what is the option's value? Do not round intermediate calculations. Round your answer to the nearest cent. Use only the values provided in the problem statement for your calculations.