Heller is introducing a new product with sales of $10,000,000 per year and a Cost of Goods Sold (COGS) of $7,500,000 per year. They expect sale to grow at 5% per year for four years, then shrink at 30% per year for two years (7 years total), and then sales will stop. The 75% Cost of sales assumptions is expected to remain constant. The Heller Corporation has the following net operating working capital investment expectations for the beginning of each year of the project. At the end of the project the Net Operating Working Capital Investment will no longer be required.

Receivables: 46 days Next Year’s Sales

Inventory: 98 days COGS

Payables: 35 days COGS

(Net Operating Working Capital Analysis)

8. Calculate the annual cash flow required for the resulting Net Operating Working Capital investment. I recommend you complete this analysis in Excel.

9. If the Opportunity Cost of Capital is 9% what is the impact of the required Net Operating Working Capital Investment on the NPV of the project?

10. How much value (measured by the impact on NPV) could they create by reducing the Inventory they hold to 60 days assuming that sales are unchanged.

Can you describe bank Fed Funds Bought and bank Fed Funds Sold? These are actual balance sheet accounts on bank financial statements. Terrible name for balance sheet accounts!!

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The business has a          $ 200,000 outstanding loan with the local bank but no other debt obligations. Last week, the loan, which has a monthly payment of $ 1,500, was not paid. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is just unable to generate sufficient funds to pay the over-due loan payment as well as the payments due over the next two months.

Maria is considering selling all of the lighting fixtures in her building which will raise enough funds to make three loan payments. The bank has suggested to Maria that she sell off all her inventory. And it appears that the bank has withdrawn at least one loan payment from Maria’s personal bank account.

1) Can you suggest a strategy to help Maria with the sale of the lighting fixtures?

2) What is the impact of her selling off all her inventory?

3) Has the bank acted improperly by withdrawing the missed loan payment from Maria’s personal account given that this loan was made to her business ?

(CO A) Describe any two of the three major characteristics of the fifth merger wave of the 1990s.

Discuss the advantages and disadvantages of offering student loan repayment benefits. How can the benefit be improved for the companies offering student loan repayment and for their employees? What changes you would like to see in the practice?

A bond with a face value of $10,000 has 4 years and 28 days left to maturity.

The coupon rate is 4%.

Interest payments are paid quarterly.

The bond will be discounted at an annual rate of 8%.

Diagram the cash flows of this bond.

What is the current price of this bond?

How is the extra 28 days handled in the pricing of the bond?

What are the risks of this bond? (looking for 2 risks on bonds)

Excel Task 1 & 2 (due week 6): Please submit both tasks together on one pdf document. Do not forget to highlight your answers.

Q. Purchasing Department cost drivers, simple regression analysis

Fashion Flair operates a chain of 10 retail department stores. Each department store makes its own purchasing decisions. Barry Lee, assistant to the president of Fashion Flair, is interested in better understanding the drivers of Purchasing Department costs. For many years, Fashion Flair has allocated Purchasing Department costs to products on the basis of the dollar value of inventory purchased. A $100 item is allocated 10 times as many overhead costs associated with the Purchasing Department as a $10 item.

Barry recently attended a seminar titled ‘Cost drivers in the retail industry’. In a presentation at the seminar, Couture Fabrics, a leading competitor, reported number of purchase orders and number of suppliers to be the two most important cost drivers of Purchasing Department costs. The dollar value of inventory purchased in each purchase order was not found to be a significant cost driver. Barry interviewed several members of the Purchasing Department at the Fashion Flair store on the Gold Coast. They believed that Couture Fabrics’s conclusions also applied to their Purchasing Department.

Barry Lee collects the following data for the most recent year for Fashion Flair’s 10 retail department stores:

Barry decides to use simple regression analysis to examine whether one or more of three variables (the last three columns in the table) are cost drivers of Purchasing Department costs.

Refer to the question above and

Excel task 1: Run the below regression models to estimate a and b

1. Regression 1: PDCs = a + (b × IP$)

2. Regression 2: PDCs = a + (b × No. of POs)

3. Regression 3: PDCs = a + (b × No. of Ss)

Excel task 2:

1. Compare and evaluate the three simple regression models estimated by Barry Lee.

2. Do the regression results support Couture Fabrics’s presentation about the Purchasing Department’s cost drivers?

Q8) Acme Inc. is deciding between leasing and purchasing machinery that is necessary for its operations. The lease is for 10 years with an annual cost of $100,000. The purchase price is $670,000. The purchased machinery would cost $15,000 per year to maintain and last 18 years. Acme's WACC is 8%. What is the equivalent annual annuity of the purchase option? Which option should Acme choose, lease or purchase?

A) -$133,075.18; Purchase

B) -$52,222.22; Purchase

C) -$133,075.18; Lease

D) -$86,490.40; Purchase

E) -$100,299.97; Lease

In a fast changing and increasingly complex world, there is more that interests shareholders, CEOs, managers and stock owners. Discuss the truth in this statement in view of business globalization.

Your company is considering a new 4-year project that requires an initial fixed asset investment of $3.25 million. The fixed asset is eligible for 100 percent bonus depreciation in the first year (which means can all be depreciated in year 1). At the end of the project, the asset can be sold for $440,000. The project is expected to generate $3.05 million in annual sales, with annual expenses of $955,000. The project will require an initial investment of $490,000 in NWC that will be returned at the end of the project. The corporate tax rate is 22 and the project has a required return of 11 percent.

What is the NPV of the project?

Stan is going to work for the next 30 years and then retire. Starting the day he retires, he would like to withdraw $90,000 per year (in monthly installments) from an investment account for a twenty-five year retirement. At the end of his retirement, he would like to leave a bequest of $100,000 to his heirs. He currently has $10,000 in his investment account for these purposes. Stan plans to save for retirement by making monthly deposits into the investment account, beginning two years from now and ending the month before he retires. The investment account pays 9 percent compounded monthly. Construct a flexible spreadsheet model to answer the following questions:

1. How much must Stan invest each month to accomplish his retirement goals?

2. If Stan's employer will contribute $0.50 for every $1.00 he invests, how much of the deposit in #1 will Stan have to contribute?

Suppose we are given the following info:

Consider an investor, David, whose risk aversion (Coefficient A) is assumed to be 3.5

Compute his optimal (complete) portfolio, round answer to 3 decimal places