Mohammed is the CEO of ABC Motors, a large automotive company that produces affordable four-passenger cars for the typical lower-income class family. Each model is typically driven only five years. The model from two years ago, the ABC-8, which sold for $8,000, has been involved in four car crashes where the cars, when struck from the rear when the right blinker signal is activated, causes the fuel in the gas tank to ignite. There have been no fatalities, but several injuries. Victims have begun organizing into a class action lawsuit against the company.

A technician at the company discovered the issue with the blinker circuit soon after the last explosion was analyzed. He wrote the following memo to his superiors:

“We can recall each of the ABC-8 models that we have sold and replace the blinker circuit with a new lining. It is highly likely this will correct the issue. This will lead to a cost to the company of $20 per car for the repair and an estimated $50 in lost labor revenues, since we cannot charge for the refit. There are an estimated 500,000 cars that are affected. Estimated cost to the company of this refit program: $35 million. If we do not act soon, there could be an estimated two explosions per year.”

Soon after reading this memo, Mohammed gives his accounting department a hypothetical scenario: what would be the cost of settling a class action lawsuit out of court for ten low-income families? Estimating the present value of typical future earnings from a blue collar worker, aged 18 to retirement age of 65, the accountant gives a figure of $600,000 per family, amounting to a total settlement of $6 million.

Mohammed orders his legal counsel to proceed with settling the class action lawsuit and does not inform his board of directors about the technician’s memo. Discuss.

Ms. B is a 40-year-old woman who is the CEO of a struggling company. Lately she has been experiencing headaches that are so severe that she gets dizzy and nauseated, and she is unable to carry out her usual daily routines. She reports that they usually begin as a throbbing pain in the left temple and then seem to spread throughout her head. A diagnosis of migraine headache is made after several tests.

Based on the patient history and signs and symptoms, discuss this type of headache and its physiological causes. (See Headaches—Migraines.)

Discuss the available treatments to prevent and/or relieve the patient’s migraine. (See Migraines.)

Microbiology question!

"Sharon, the CEO of a start-up company, lives in Westchester County, a wooded community north of New York City. She spends her summer weekends e-mailing her managers from the outdoor deck of her home, shaded by tall oak trees. The acorns attract mice and deer, and the leaf litter is full of ticks (Ixodes scapularis) . One evening Sharon’s husband noticed a red rash on her back, consisting of a ring shape several centimeters across, surrounding another red spot in the middle. Sharon recalled seeing this “bull’s-eye” type of rash on the Internet. The rash was described as the hallmark of Lyme disease, or borreliosis, caused in the United States by the tick-borne bacterium Borrelia burgdorferi (in Europe, by the closely related species Borrelia afzelii ). The distinctive rash, erythema migrans (“migrating redness”), begins at the site of a tick bite and expands concentrically as the bacteria migrate outward. Sharon recalled that a neighbor’s child had suffered crippling arthritis caused by an undetected case of Lyme disease. Another neighbor who contracted Lyme disease had suffered from meningitis (inflammation of the brain lining) and neurological abnormalities, including facial paralysis, ultimately losing his job and his million-dollar home. The next day Sharon went to her doctor and was treated with the antibiotic doxycycline, a tetracycline derivative that targets the bacterial ribosome. Doxycycline is the antibiotic of choice for B. burgdorferi . Sharon was fortunate to make a full recovery before serious symptoms appeared. The bull’s-eye rash that is a hallmark of Sharon’s infection is associated with movement of the bacteria from the initial site of tick bite and infection. Discuss how these bacteria move and the cell structures associated with movement."

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the properties to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 9 million shares of common stock outstanding. The stock currently trades at $37.80 per share. Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pre-tax earnings (EBIT) by $18.75 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.20%. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par (face value) with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because of the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate.

1) What after-tax cash flow must Stephenson be currently producing per year, assuming that its current cash flows remain constant each year?

2) Construct Stephenson’s market value balance sheet before it announces the purchase. Market value balance sheet Debt Existing Assets Equity Total assets Total Debt + Equity

3) Suppose Stephenson decided to issue equity to finance the purchase.

a) What is the net present value of the land acquisition project?

b) Construct Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. (Assume that the value of the firm will immediately change to reflect the NPV of the new project.)

Market value balance sheet:

Old assets=

Debt=

NPV of project=

Equity=

Total assets=

Total Debt + Equity =

c) What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase?

d) Construct Stephenson’s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock?

Market Value Balance Sheet:

Cash=

Old assets=

Debt=

NPV of project=

Equity=

Total assets=

Total Debt + Equity=

e) What is Stephenson’s weighted average cost of capital after the acquisition? What after-tax cash flow will be produced annually after the acquisition? What is the present value of this stream of after-tax cash flow? What is the stock price after the acquisition? Does this agree with your previous calculations?

4) Suppose Stephenson decides to issue debt to finance the purchase. a) What will be the market value of the Stephenson company be if the purchase is financed with debt?

b) Construct Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock? Market Value Balance Sheet Value unlevered Debt Tax shield Equity Total assets Total Debt + Equity

c) What is Stephenson’s cost of equity if it goes forward with the debt issue? (Do not round your answer.)

d) What is Stephenson’s weighted average cost of capital if it goes forward with the debt issue? (Do not round your answer.)

e) What total after-tax cash flow is being generated by Stephenson after the acquisition?

f) What is the present value of this after-tax cash flow? What is the market value of equity? What is the stock price? Does this agree with your work from parts (a) and (b)?

5) Which method of financing maximizes the per-share price of Stephenson’s equity?

6) Does the resultant capital structure (with the land acquisition financed by debt) satisfy Jennifer’s concerns about the negative effects of moving beyond the optimal capital structure?

The CEO of Kuehner Development Company has just come from a meeting with his marketing staff where he was given the latest market study of a proposed new shopping center. The study calls for a construction phase of 1 year, and a subsequent operation phase. This question focuses largely on the construction phase.
The marketing staff has chosen a 12-acre site for the project that they believe they can acquire for $2.25 million. The initial studies indicate that this shopping center will have gross building area (GBA) of 190,000 sq. ft.
The head of the construction division assures the CEO that hard costs will be kept to $54 per sq ft. of GBA, and soft costs (excluding interest carry and loan fees) will be kept to $4.50 per square foot of GBA. Site improvements will cost $750,000.
The Shawmut Bank has agreed to provide construction financing for the project. The bank will finance the construction costs (hard and soft) and the site improvements at an annual rate of 13%. They will also charge a loan-commitment fee of 2% of the total balance.
The construction division estimates that 60 percent of the financed construction costs will be taken down evenly during the first six months of the construction project. The remaining 40 percent will be taken down evenly during the last six months.

a. What are the total construction costs that the bank is willing to finance?

b. Given the terms of the construction loan, what will be the total interest carry for the shopping center project?

c. What will be the total amount that Kuehner must borrow (Hint: remember to include interest carry)?

d. How much equity does Kuehner need to put into the project?

e. Acme Insurance Co. agrees to provide permanent financing for the project and “take-out” the construction loan at the end of 1 year. They agree to provide a fully amortizing mortgage with a 20 year maturity at a 12 percent annual interest rate. What is the monthly debt service that Kuehner will have to make once construction is complete and operations begin?

The CEO of Kuehner Development Company has just come from a meeting with his marketing staff where he was given the latest market study of a proposed new shopping center. The study calls for a construction phase of 1 year, and a subsequent operation phase. This question focuses largely on the construction phase.
The marketing staff has chosen a 12-acre site for the project that they believe they can acquire for $2.25 million. The initial studies indicate that this shopping center will have gross building area (GBA) of 190,000 sq. ft.
The head of the construction division assures the CEO that hard costs will be kept to $54 per sq ft. of GBA, and soft costs (excluding interest carry and loan fees) will be kept to $4.50 per square foot of GBA. Site improvements will cost $750,000.
The Shawmut Bank has agreed to provide construction financing for the project. The bank will finance the construction costs (hard and soft) and the site improvements at an annual rate of 13%. They will also charge a loan-commitment fee of 2% of the total balance.
The construction division estimates that 60 percent of the financed construction costs will be taken down evenly during the first six months of the construction project. The remaining 40 percent will be taken down evenly during the last six months.
a. What are the total construction costs that the bank is willing to finance?

b. Given the terms of the construction loan, what will be the total interest carry for the shopping center project?

c. What will be the total amount that Kuehner must borrow (Hint: remember to include interest carry)?

d. How much equity does Kuehner need to put into the project?

e. Acme Insurance Co. agrees to provide permanent financing for the project and “take-out” the construction loan at the end of 1 year. They agree to provide a fully amortizing mortgage with a 20 year maturity at a 12 percent annual interest rate. What is the monthly debt service that Kuehner will have to make once construction is complete and operations begin?

Once again, your team is the key financial management team for your company. The company’s CEO is now looking to expand its operations by investing in new property, plant, and equipment. In order to effectively evaluate the project’s effectiveness, you have been asked to determine the firm’s weighted average cost of capital. To determine the cost of capital, here is what you have been asked to do.

1. Go to Yahoo Finance (http://finance.yahoo.com) and capture the income statement information for the company you selected. (Be sure that your company has debt on their balance sheet. This will be required in your project.)

a. Enter your company’s name or ticker symbol. Your company’s information should appear.

b. Click on the Financials tab, and select the income statement option. Three years’ worth of income statements should appear. Copy and paste this data into a spreadsheet.

c. Repeat step b. above for the balance sheets of the company.

d. Click on “Historical Prices.” Capture the closing price of the stock as of the balance sheet date for the three fiscal years used in steps b and c above.

URGENT: NEED ANSWER ASAP

PLEASE RESPOND WITH COPY AND PASTE, NOT ATTACHMENT USE ORIGINAL CONTENT NOT USED BEFORE ON CHEGG

PLEASE ANSWER THROUGHLY TO ALL ANSWER TO BEST ABILITES ORIGINAL SOURCE NEVER USED BEFORE!!!

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the properties to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 9 million shares of common stock outstanding. The stock currently trades at $37.80 per share.

Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pre-tax earnings (EBIT) by $18.75 million in perpetuity. Jennifer Weyand, the company’s new CFO, has been put in charge of the project. Jennifer has determined that the company’s current cost of capital is 10.20%. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par (face value) with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because of the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate.

What after-tax cash flow must Stephenson be currently producing per year, assuming that its current cash flows remain constant each year?

Construct Stephenson’s market value balance sheet before it announces the purchase.

3)Suppose Stephenson decided to issue equity to finance the purchase.

What is the net present value of the land acquisition project?

Construct Stephenson’s market value balance sheet after it announces that the firm will finance the purchase using equity. (Assume that the value of the firm will immediately change to reflect the NPV of the new project.)

What would be the new price per share of the firm’s stock? How many shares will Stephenson need to issue to finance the purchase?

Construct Stephenson’s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock?

e)What is Stephenson’s weighted average cost of capital after the acquisition? What after-tax cash flow will be produced annually after the acquisition? What is the present value of this stream of after-tax cash flow? What is the stock price after the acquisition? Does this agree with your previous calculations?

Suppose Stephenson decides to issue debt to finance the purchase.

What will be the market value of the Stephenson company be if the purchase is financed with debt?

Construct Stephenson’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm’s stock?

c)What is Stephenson’s cost of equity if it goes forward with the debt issue? (Do not round your answer.)

d)What is Stephenson’s weighted average cost of capital if it goes forward with the debt issue? (Do not round your answer.)

e)What total after-tax cash flow is being generated by Stephenson after the acquisition?

f)What is the present value of this after-tax cash flow? What is the market value of equity? What is the stock price? Does this agree with your work from parts (a) and (b)?

Which method of financing maximizes the per-share price of Stephenson’s equity?

Does the resultant capital structure (with the land acquisition financed by debt) satisfy Jennifer’s concerns about the negative effects of moving beyond the optimal capital structure?

"Off Balance Sheet Financing"

Harold Walker is CEO and Owner of Walker Enterprises (WE), a company that has shown strong and consistent growth over the years. However, WE is struggling with cash flow issues and Harold is looking for a loan and/or line of credit to bolster his company. The problem is that the company’s debt to equity ratio is already high and he knows it will be challenging to find a bank willing to lend him additional funds. Fred, his CFO, has come up with an idea. A large portion of the company’s debt is tied up in the mortgage of their five-story office building. Fred has suggested moving this debt to “off balance sheet” by creating an SPV (Special Purpose Vehicle) that owns the building on behalf of the company and then leases it back. This results in WE entering into an operating lease off the balance sheet and recording only the relatively small monthly “rent” as an operating expense. Fred says this will significantly increase the company’s liquidity and present a balance sheet that will be much more attractive to any potential lenders.

Fred has assured Harold this is legal and common. This arrangement does not feel right to Harold.

• What additional information should Harold request?
• What additional reservations or concerns would you have?

You are the CEO of a large, name-brand consumer packaged goods company. Some of your most well-known products include frozen foods, bottled drinks and juices, salad/food dressings and snacks. You have garnered considerable success in the domestic U.S. market, where you have commanding market shares in almost all of your food categories. On a recent trip to the international foods convention in Vegas, you meet with some investment bankers who are following your company's strategy and day-to-day events. They point out to you that they would like to see you continue to sustain the high growth rate of your company. In fact, they believe that an important way to continue growing is by entering new overseas markets. You concur, and are willing to hear what else they might have to say. The bankers realize you are somewhat risk-averse, as you are unwilling to make an outright acquisition of a company in a market or region with which you are not familiar. However, they note that are two potential alliance partners who would like to talk with you. Both of these companies are in the same industry as you, so there is no issue of industry-based friction or tension. On the other hand, the two prospective firms differ from each other along some important dimensions.
The first company (call it A) is small, managed by a young and enthusiastic management team, but is comparatively new to the food business. In fact, the young leader of company A claims to have read about you in airline magazines and other business publications, and he/she aspires to build the same kind of company that you did. He/she looks up to you and is excited that you are considering his/her company as a potential partner. Company A is well-situated in an emerging market that looks promising, but is already well-represented by the operations and subsidiaries of other highly diversified, multinational food firms. Most of company A’s business is dedicated to providing bottled drinks to its own emerging market. These bottled drinks are wildly popular, and you are thinking that they could be exported to other similar emerging markets (and even the U.S. market) if the conditions are right. The bottled drinks business offer you a nice way to get into A’s emerging market, where you can contribute important skills, but you are concerned that the A’s facilities are not quite up to your quality standards. An additional factor to consider is that the transportation infrastructure in A’s marketplace is uneven, raising the possibility that freight damage could occur, as well as perishability, due to the limited shelf-life of bottled drinks. Company A prefers to work with you in a joint venture format where the both companies form a third-party entity that would serve as the nerve center and operations base of the alliance.
The second company (call it B) is large, and highly diversified in many food businesses. It is almost two-thirds (2/3) your size and has been around for almost thirty years. It has a long history of working closely with the government in its marketplace, and at one point, was owned by the government before it was privatized. Competing in a free-market economy remains more of an abstract, than a real, tangible concept. In fact, company B is often a place where departing government officials often call home, since there are many ties with B’s management that were developed over time. Company B’s management has a marked tendency to look towards its central government for “guidance” on how it should compete. As such, the company has not evinced a high degree of urgency for profitability nor for perfection. Although B owns a number of modern, state-of-the-art bottling and food processing facilities, they are all heavily unionized, and workers are worried about competing in this post-privatization environment. Company B offers you a wide variety of possible joint food-related projects within a broad alliance, and B’smarketplace is only now beginning to be discovered by other multinational firms. Transportation in B’s marketplace is somewhat better, but company B has relied exclusively on its own set of suppliers for bottles, cans, labels, and bottle caps for a long time. There are few other suppliers of these inputs to B in that market. Company B, however, does not want to work in a joint venture alliance format with you. In fact, company B insists on a co-production arrangement that does not involve any type of third-company formation, equity sharing or the like.Being somewhat of a cautious person, you choose to investigate allying with only one of the two potential partners. Financing is easily available.

Based on the notion of differing perceptions of time, how does Company A appear to think? Also, how does Company B appear to think? What makes each company “tick?”