You have recently been hired by Swan Motors, Inc. (SMI), in its relatively new treasury management department. SMI was founded 8 years ago by Joe Swan. Joe found a method to manufacture a cheaper battery with much greater energy density than was previously possible, giving a car powered by the battery a range of 700 miles before requiring a charge. The cars manufactured by SMI are midsized and carry a price that allows the company to compete with other mainstream auto manufacturers. The company is privately owned by Joe and his family, and it had sales of $97 million last year.

SMI primarily sells to customers who buy the cars online, although it does have a limited number of company-owned dealerships. Most sales are online. The customer selects any customization and makes a deposit of 20 percent of the purchase price. After the order is taken, the car is made to order, typically within 45 days. SMI’s growth to date has come from its profits. When the company had sufficient capital, it would expand production. Relatively little formal analysis has been used in its capital budgeting process. Joe has just read about capital budgeting techniques and has come to you for help. For starters, the company has never attempted to determine its cost of capital, and Joe would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. Joe wants you to use the pure play approach to estimate the cost of capital for SMI, and he has chosen Tesla Motors as a representative company. The following questions will lead you through the steps to calculate this estimate.

1. Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the “Search for Company Filings” link and the “Companies & Other Filers” link, enter “Tesla,” and search for SEC filings made by Tesla. Find the most recent 10Q and 10K and download the forms. Look on the balance sheet to find the book value of debt and the book value of equity. If you look further down the report, you should find a section titled either “Long-Term Debt” or “Long-Term Debt and Interest Rate Risk Management” that will list a breakdown of Tesla’s long-term debt.

2. To estimate the cost of equity for Tesla, go to finance.yahoo.com and enter the ticker symbol “TSLA.” Follow the various links to find answers to the following questions: What is the most recent stock price listed for Tesla? What is the market value of equity, or market capitalization? How many shares of stock does Tesla have outstanding? What is the beta for Tesla? Now go back to finance.yahoo.com and follow the “Bonds” link. What is the yield on 3-month Treasury bills? Using a 7 percent market risk premium, what is the cost of equity for Tesla using the CAPM?

3. Go to www.reuters.com and find the list of competitors in the industry. Find the beta for each of these competitors, and then calculate the industry average beta. Using the industry average beta, what is the cost of equity? Does it matter if you use the beta for Tesla or the beta for the industry in this case?

4. You now need to calculate the cost of debt for Tesla. Go to finra-markets.morningstar.com/BondCenter/Results.jsp, enter Tesla as the company, and find the yield to maturity for each of Tesla’s bonds. What is the weighted average cost of debt for Tesla using the book value weights and the market value weights? Does it make a difference in this case if you use book value weights or market value weights?

5. You now have all the necessary information to calculate the weighted average cost of capital for Tesla. Calculate the weighted average cost of capital for SMI using book value weights and market value weights assuming SMI has a 35 percent marginal tax rate. Which cost of capital number is more relevant? 6. You used Tesla as a representative company to estimate the cost of capital for SMI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?

2. Island Water Sports is a business that provides rental equipment and instruction for a variety of water sports in a resort town. On one particular morning, a decision must be made of how many Wildlife Raft Trips and how many Group Sailing Lessons should be scheduled. Each Wildlife Raft Trip requires one captain and one crew person, and can accommodate six passengers. The revenue per raft trip is $120. Ten rafts are available, and at least 30 people are on the list for reservations this morning. Each Group Sailing Lesson requires one captain and two crew people for instruction. Two boats are needed for each group. Four students form each group. There are 12 sailboats available, and at least 20 people are on the list for sailing instruction this morning. The revenue per group sailing lesson is $160. The company has 12 captains and 18 crew available this morning. Develop the linear programming problem and solve the linear programming model to maximize the number of customers served while generating at most $1800 in revenue and honoring all reservations. (Hint: You need 2 decision variables to develop this LP problem.)

2.1. Advanced Heating Systems Limited (AHSL) is a large publicly listed company and is the market leader in the heat pump manufacturing industry. The company is planning a six-year project setting up a manufacturing plant overseas to produce a new line of residential heat pumps. The company bought a piece of land four years ago for $ 9 million in anticipation of using it for its proposed manufacturing plant. If the company sold the land today, it would receive $ 10.50 million after taxes. In six years the land can be sold for $8 million after taxes and reclamation costs. AHSL wants to build a new manufacturing plant on this land. The plant will cost $280 million to build. The following is the AHSL’s current market data.

The following information is relevant:

Advanced Heating Systems Limited’s tax rate is 28%

The company had been consistently paying dividends to its ordinary shareholders. Dividends paid during the past five years were as follows:

The project requires $ 10.25 million in initial net working capital investment in year₀ to become operational.

Work all solutions to the nearest two decimals.

Required:

Calculate the project’s initial, (year₀) cash flows, taking into account all side effects.

Compute the weighted average cost of capital (WACC) of Advanced Heating Systems Limited. Show all workings and state precisely the assumptions underlying your calculations.

Using the WACC calculated in part (2) and assuming the following, compute the project’s Payback Period, Net Present Value (NPV), Internal Rate of Return (IRR) and the Profitability Index (PI).

The manufacturing plant has a ten-year tax life, and AHSL uses Diminishing value method of depreciation for the plant at 20 % per annum. At the end of the project, (i.e., at the end of year 6), the plant can be scrapped for $ 21 million.

The project will incur $185 million per annum in fixed costs.

AHSL is expected to manufacture 320,000 residential heat pumps per year in each of the years, and the estimated selling price is $ 1,850 per heat pump.

The variable production costs are $ 850 per heat pump.

At the end of year 6, the company will sell the land.

2.2. Is it acceptable to use a firm’s risk-adjusted cost of capital to assess its investments? Explain why or why not.

New Horizon Heating Systems Limited (NHHSL) is a large publicly listed company and is the market leader in the heat pump manufacturing industry. The company is considering the purchase of one of four mutually exclusive projects for improving its assembly line. The required payback period is three and a half years. The financial data regarding the four projects is given below (ignore taxes).

Project Project A Project B Project C Project D

Sales 80,000 150,000 110,000 90,000

Direct Costs 32,000 54,000 30,000 36,000

Depreciation 16,000 80,000 60,000 70,000

Interest 24,000 32,000 18,000 14,000

Initial Investment 200,000 350,000 180,000 140,000

Project Life (Years) 10 12 16 15

The manufacturing department has requested the board to evaluate these opportunities by means of a discounted cash flow technique. The finance department personnel have been unwilling to use a discounted cash flow technique because of the difficulty in establishing an appropriate discount rate. They, therefore, propose to calculate each project's internal rate of return and let the board determine appropriate hurdle rates. Required:

(a) Calculate each project's payback period and state which alternative should be accepted based on this criterion.

(b) Calculate each project's internal rate of return (IRR), and using a hurdle rate of 22% state which of the opportunities is acceptable by this criterion.

(c) Discuss the possible reasons why the above two project appraisal methods do not give answers which are consistent with each other, for the accept/reject decision. Which should the board employ? Why?

(d) Discuss some of the elements which should be considered when determining the appropriate hurdle rate for an individual project.

Select your favorite drink or snack item manufactured by a publicly held company. For this product predict the following:

1. Where is the product manufactured?

2. Given the suggested retail price of the company and using a 50% markup on price at retail, determine the sell price to the distributor/merchandiser. Review the company’s overall gross margin. If the product is sold direct to the consumer, you may apply the gross margin as calculated. Applying the gross margin percentage to your product sales price, infer the cost of the product. Present your calculations in a supporting table.

3. Complete the same exercise for a competitor’s product of the same type. Present your calculations in a supporting table included in your paper.

4. Comment on the differences in cost between the two competitors, and assert the reason for this difference (e.g., does the company compete on cost or differentiation?)

5. Apply the concept of the value chain to this product. What types of costs would be relevant for each segment of the value chain for this product?

6. Research a single critical ingredient of your snack and its source. Do you expect significant increases in the cost of this ingredient over the next year? Support your response with input from the commodities market or other economic data.

7. What are the opportunities to offset this price increase, maintain gross margin, and offer the product to consumers at the same price currently? Present your calculations in a supporting table included in your paper.

On January 1, 2015, the ledger of Accardo Company contains the following liability accounts. Accounts Payable $52,810 Sales Taxes Payable 8,770 Unearned Service Revenue 16,470 During January, the following selected transactions occurred. Jan. 5 Sold merchandise for cash totaling $21,384, which includes 8% sales taxes. 12 Performed services for customers who had made advance payments of $11,590. (Credit Service Revenue.) 14 Paid state revenue department for sales taxes collected in December 2014 ($8,770). 20 Sold 900 units of a new product on credit at $50 per unit, plus 8% sales tax. 21 Borrowed $29,250 from Girard Bank on a 3-month, 8%, $29,250 note. 25 Sold merchandise for cash totaling $11,556, which includes 8% sales taxes. Journalize the January transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 5 Jan. 12 Jan. 14 Jan. 20 Jan. 21 Jan. 25 SHOW LIST OF ACCOUNTS LINK TO TEXT Journalize the adjusting entries at January 31 for the outstanding notes payable. (Hint: Use one-third of a month for the Girard Bank note.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 31 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the current liabilities section of the balance sheet at January 31, 2015. Assume no change in accounts payable. Accardo Company Balance Sheet (Partial) January 31, 2014 $ $ SHOW LIST OF ACCOUNTS LINK TO TEXT

Chief Complaint: 74-year-old woman with shortness of breath and swelling.

History: Martha Wilmington, a 74-year-old woman with a history of rheumatic fever while in her twenties, presented to her physician with complaints of increasing shortness of breath ("dyspnea") upon exertion. She also noted that the typical swelling she's had in her ankles for years has started to get worse over the past two months, making it especially difficult to get her shoes on toward the end of the day. In the past week, she's had a decreased appetite, some nausea and vomiting, and tenderness in the right upper quadrant of the abdomen.

On physical examination, Martha's jugular veins were noticeably distended. Auscultation of the heart revealed a low-pitched, rumbling systolic murmur, heard best over the left upper sternal border. In addition, she had an extra, "S₃" heart sound.

Top of Form

Questions:

1. What is causing this murmur?

2. What is causing her "S₃" heart sound?

3. Is her history of rheumatic fever relevant to her current symptoms? Explain.

4. A chest X-ray reveals a cardiac silhouette that is normal in diameter. Does this rule out a possible problem with Martha's heart? Explain.

Chief Complaint: 74-year-old woman with shortness of breath and swelling. History: Martha Wilmington, a 74-year-old woman with a history of rheumatic fever while in her twenties, presented to her physician with complaints of increasing shortness of breath ("dyspnea") upon exertion. She also noted that the typical swelling she's had in her ankles for years has started to get worse over the past two months, making it especially difficult to get her shoes on toward the end of the day. In the past week, she's had a decreased appetite, some nausea and vomiting, and tenderness in the right upper quadrant of the abdomen. On physical examination, Martha's jugular veins were noticeably distended. Auscultation of the heart revealed a low-pitched, rumbling systolic murmur, heard best over the left upper sternal border. In addition, she had an extra, "S3" heart sound. Top of Form

5. You examine Martha's abdomen and find that she has an enlarged liver ("hepatomegaly") and a moderate degree of ascites (water in the peritoneal cavity). Explain these findings. 6. Examination of her ankles reveals significant "pitting edema." Explain this finding. 7. She is advised to wear support stockings. Why would this help her? 8. Which term more accurately describes the stress placed upon Martha's heart -- increased pre-load or increased afterload? 9. What is the general term describing Martha's condition? 10. How might Martha's body compensate for the above condition? 11. Martha is started on a medication called digoxin. Why was she given this medication, and how does it work? 12. Two weeks after starting digoxin, Martha returns to the physician's office for a follow-up visit. On physical examination, she still has significant hepatomegaly and pitting edema, and is significantly hypertensive (i.e. she has high blood pressure). Her physician prescribes a diuretic called furosemide (or "Lasix"). Why was she given this

Chief Complaint: 74-year-old woman with shortness of breath and swelling. History: Martha Wilmington, a 74-year-old woman with a history of rheumatic fever while in her twenties, presented to her physician with complaints of increasing shortness of breath ("dyspnea") upon exertion. She also noted that the typical swelling she's had in her ankles for years has started to get worse over the past two months, making it especially difficult to get her shoes on toward the end of the day. In the past week, she's had a decreased appetite, some nausea and vomiting, and tenderness in the right upper quadrant of the abdomen. On physical examination, Martha's jugular veins were noticeably distended. Auscultation of the heart revealed a low-pitched, rumbling systolic murmur, heard best over the left upper sternal border. In addition, she had an extra, "S3" heart sound. 9. What is the general term describing Martha's condition? 10. How might Martha's body compensate for the above condition? 11. Martha is started on a medication called digoxin. Why was she given this medication, and how does it work?

Question:

Two weeks after starting digoxin, Martha returns to the physician's office for a follow-up visit. On physical examination, she still has significant hepatomegaly and pitting edema, and is significantly hypertensive (i.e. she has high blood pressure). Her physician prescribes a diuretic called furosemide (or "Lasix"). Why was she given this????

Thanks