Mike and Sheila Parker have determined that they need a retirement fund of $2,000,000 at their planned retirement in 30 years; they want to begin a savings program this year to meet this goal. They anticpate that they can earn an average7% after tax return on their retirement savings and they want to plan for 5% annual inflation. What level annual end-of-year savings amount will enable the Parkers to accumulate their targeted retirement fund?

The following information is available for Sheffield Company at December 31, 2018: beginning inventory $139000; ending inventory $121000; cost of goods sold $845000; and sales $1880000. Sheffield’s inventory turnover in 2018 is 14.5 times. 6.2 times. 6.5 times. 6.9 times.

The following information was available for Waterway Company at December 31, 2018: beginning inventory $107000; ending inventory $61000; cost of goods sold $6132000; and sales $1440000. Waterway’s days in inventory in 2018 was 3.6 days. 21.3 days. 6.4 days. 5.0 days.

What is the purpose of a decommissioning fund (“sinking” fund)? And, why does a lump sum up front make more sense than deducting a certain interest over the expected duration of service?

Compare and contrast the three methods of cost-finding discussed in Chapter 12

-Cost-to-charge,

-Step-Down, and

-Activity-Based Costing.

How do they work?

What type of organizations might use each of the methods and why?

Sears, Inc. common stock is currently trading on the NYSE at a

price of $30 per share with 24,000,000 shares outstanding. Dividend just paid is

$1.50 per share and is forecasted to grow at a constant rate of 12% in the future.

U.S. 10-year Treasury Notes are currently yielding 2.5% and Sear’s

outstanding 10-year debt with a face value of $50 million is currently trading at

96% of face value and pays annual interest of 10%. The expected rate of return

for the S&P 500 stock index (a proxy for the market) is 12%. Sear’s

corporate tax rate is 34% and its estimated beta coefficient for risk is 1.5.

*****Please show work on EXCEL spreadsheet, please show EXCEL formulas****

a) Estimate the cost of common equity capital for Sears using the

dividend growth model

b) Estimate the cost of common equity capital for Sears using the capital

asset pricing model (CAPM)

c) Estimate the weighted average cost of capital (WACC) for Sears

*****Please show work on EXCEL spreadsheet, please show EXCEL formulas****

Davola Inc. has the following financial information: • Debt: The firm issued 1,000, 20 year bonds five years ago which were sold at a par value of $1,000. The bonds carry a coupon rate of 8.4%. • Preferred Stock: Pays a 9.75% preferred dividend with a par of $100 and is currently selling for $86. • Equity: Davola’s common stock currently sells for $72 and grows at a constant rate of 6%. Davola just paid a $4.65 dividend to their shareholders. • Davola’s business plan for next year projects net income of $360,000, half of which will be retained. • The company applies an average tax rate of 35% for cost of capital decision-making purposes. • Dovola Inc. pays flotation costs of 10% on all new stock issues. • Dovola’s capital structure is 40% debt, 15% preferred stock and 45% common equity.

a. Compute the capital component costs for each of the capital components. Ignore flotation costs for debt and preferred stock.

b.   Calculate the WACC before the break in retained earnings.

c.   Calculate Davola’s break point in retained earnings.

d.   Calculate the WACC after the break in retained earnings. In other words, calculate the WACC given the            point that the firm will have to issue new stock to fund the equity portion of its capital budget.

Braun Industries is considering the following mutually exclusive projects. Braun’s cost of capital is 9%.

           Year        Project A                Project B

            0             ($86,000)                ($86,000)

            1             $42,000                  $63,000

            2             $32,000                  $28,000

3             $12,900                  $8,000     

4             $12,200                  $3,000

5             $12,000                  $2,000

a.   Calculate each project’s NPV and IRR.

b.   Find the Payback Period for each project.

c.   Find the MIRR for each project.

d.   Which of these projects should Braun accept? Why?

Discuss a management strategy used to retain or increase cash. Share an example of a time when you’ve used a similar strategy in your personal finances. How are the applications of these strategies similar or different for businesses and individuals?

On November 1st, Ava’s credit card has a balance of $4,501.00. According to the terms of the card’s lending agreement, an interest rate of 18% per year is assessed and the monthly finance charges are calculated using the Average Daily Balance (ADB) including purchases method.

During the month, Ava expects to make the purchases listed below and will make a payment of $337.58 on November 25thth, and has collected the following additional information:

Additional Information

Use the following table to help Ava estimate her monthly interest charge for November.

One way by which Ava can reduce her finance charges, everything else remaining constant, is to:

Make more, even more expensive purchases

Make smaller payments

Request a lower interest rate on her credit card

Jaguar Electronics, Inc. is a specialized electronics firm located in Charleston, South Carolina in the United States. The company was founded in 1965 and has enjoyed success and modest growth as a supplier of components to large manufacturers of specialty electronic-mechanical devices. Recently the company's management has decided to begin manufacturing and marketing a product called the 'Airflow'. The Airflow is manufactured by assembling two component parts:

(1) mechanical assemblies (MA), which are purchased from a company in Belgium; and

(2) electronic assem­blies (EC) manufactured by Jaguar Electronics at its Charleston facility.

Jaguar Electronics has manufactured and supplied the electronic assemblies to several national manufacturers of products similar to the Airflow for several years. Most of the consumer demand for the final products comes from areas enjoying a relatively warm climate throughout the year. Accordingly, the manu­facturers of those products have sold their goods with great success throughout the southern and southwest­ ern United States. The population and economic growth in these areas have contributed greatly to the success of this type of consumer product.

The man largely responsible for Jaguar Electronics' proposed move into manufacturing and marketing Air­ flow is the company president, Mr Smith. He has spent his entire career in the electronics industry and was with Jaguar Electronics for several years before becom­ ing its president. His reign as president has been very successful. However, he has viewed the impressive sales growth of EC units with mixed feelings. As a supplier of EC components, Jaguar Electronics has prospered from the growth in sales of products such as Airflow. However, Smith has always felt that his company was not reaping all of the benefits available in sales to the consumers. At the same time he felt that Jaguar Elec­tronics did not have the resources to compete success­ fully with the large firms that dominate the US market. Smith employed a consultant to determine where increasing consumer demand for Airflow-type prod­ucts would approach a level sufficiently high to justify entering these smaller markets. After reviewing the consultant's recommendations, Smith decided that Jaguar Electronics should target two of the higher-income countries in Latin America, Country 1 and Country 2. These nations, because of the income levels in particu­ lar cities, had the potential to be lucrative markets for Airflow. The consultant estimated the potential demand for Airflow to be 20,000 units per year in Country 1, and 40,000 units per year in Country 2.

The consultant had also recommended four options available to Jaguar Electronics as to how the widgets could be produced and distributed to these markets:

1. Assemble the widgets in Charleston and distribute them from that point.
2. Assemble them in Country 1, and distribute them from that point.
3. Assemble them in a free trade zone in Country 2.
4. Assemble them in a free trade zone in another coun­try, Country 3, which had no significant potential domestic market for Airflow, but a lower labor cost.

Smith held a meeting to brief his production manager, Daphne R. Feldblum, and his distribution manager, Karl Q. Winklepleck, on the proposed Airflow venture and the consultant's recommendations. Both had been with the company for several years.

After briefing the two managers, Smith asked: 'What course of action would you recommend?' Feldblum replied: 'We should probably assemble them where the labor cost would be lowest.' Winklepleck commented: 'We should also consider transportation rates, insurance rates, import duties, and free trade zones.' Smith decided that Feldblum and Winklepleck should work together to compile the information nec­essary for making the best possible decision.

Two weeks later the information shown in Tables 13.2 and 13.3 had been compiled.

With the data available, Smith had a meeting withFeldblum, Winklepleck, and a member of the corporate legal staff to discuss what should be done. The meeting went poorly. Feldblum still believed that the company should locate assembly in the place with the lowest labor cost. Winklepleck realized that he should have provided a spreadsheet indicating total costs associated with each approach.

Table 13.2 Cost, demand, weight, and tariff data

Annual demand in Country 1               20,000 units

Annual demand in Country 2                40,000 units

Labor costs for assembly

in Charleston                                  $5.00/unit

in Country 1                                    $4.50/unit

in Country 2 free trade zone            $4.00/unit

in Country 3 free trade zone             $3.75/unit

Cost of components

MA,FOB Brussels {Belgium)            $25.00/unit EC, FOB Charleston                $30.00/unit

Product weight

MA                                                   60 lb/ unit

EC                                                   40 lb/ unit

Airflow                                           100 lb/ unit

Import duties as a percentage of price paid)

Table 13.3 Combined rates for transportation and insurance between respective points

(Note: Projected sales volumes would justify shipping by container load. Though shipping rates would actually be charged per container load, for ease of calculation the rates below are shown as dollar costs per hundred pounds ($/cwt). If products were shipped in less­ than-container loads, rates would be much higher.)

Footnote by Winklepleck: Ocean freight shipments from Belgium to Country 3 are very infrequent.

The total cost figures for assembling in Charleston and Country 3 appeared to be very close. If it was possible to obtain some type of free trade area in Charleston, or if the US government could refund duty on the component MA when the finished product was exported, Charleston would actually be less expensive. In any event, figures for all of the combinations should be carefully calculated.

Winklepleck also had some questions in his mind that he wondered if he should raise. They seemed to be important, but the president might not be pleased to have them brought up. If assembly were to be done overseas, how would quality be controlled? Should the company consider making a product for export that it thought it couldn't market successfully in the United States? Did the company have the resources needed and was it prepared to make the effort required to begin marketing internationally: establishing market­ ing channels, product promotion, etc.? How Jong would it take to reach the projected sales overseas, and what would be needed to promote the product? How sure could they be that they could ever sell the expected number of units in each of the two overseas markets?

Questions to be Answered: Try Solving Using Excel

1. Calculate the total costs if the Airflow is assembled in Country 1 vs. Country 2, vs. Country 3. Note that Country 2 and 3 have a foreign trade zones and Country 1 does not. Note also that calculations should be done for total sales to supply the two countries.
2. Which country should they select to assemble the Airflow to maximize profit?
3. If the duty rate for Country 2 increases to 20%, how would this change your answer in question #2?

Question 2-7 are based on the following series of futures price (F(0), F(1),... F(6)):

Day 0: F(0)=$212

Day 1: F(1)=$211

Day 2: F(2)=$214

Day 3: F(3)=$209

Day 4: F(4)=$210

Day 5: F(5)=$202

Day 6: F(6)=$200

Suppose you are going to long 20 contracts. The initial margin=$10 per contract, and the maintenance margin is $2.

First Question from the set of information: how much do you need to deposit in the trading account at Day 0?

Using the same set of information from Question 2,  what is the ending balance in Day 1?

Using the same set of information from Question 2, figure out what is the first day, on which, you receive margin call and need to put extra money into the trading account?

Using the same set of information from Question 2, answering what is the additional fund that needs to put into account on Day 6?

Using the same set of information from Question 2, answering what is the ending balance at Day 6?

Using the same set of information from Question 2, answering which day has the largest gain among the 6 days?