You are asked to answer all the questions in the proposed case. This task assesses the following learning outcomes:

• Assess the present value of future cash flows and the future value of regular savings, annually and periodically.

• Understand the Perpetuity and annuity valuation and their factors – annual and periodical – and with various starting dates with and without

  growth.

• Demonstrate an ability to apply the technical skills in a practical context.

  LAUNCH: WEEK 10 / DELIVERY: MAY 10Tth, 2020, 23:59HRS ON MOODLE
  Submission file format: Word document with all the answers, clearly identifying all steps, results, and including comments besides each answer. Task (100 points)

  The Andreotti family—comprising Mr. Andreotti, aged 40, Mrs. Andreotti, aged 38, and their three young children— relocated to Barcelona in 2020 when Mr. Andreotti received a job offer from a leading investment banking giant. For the next six years, they rented a three-bedroom condominium for 2.000€ in Barcelona per month, which included parking and condominium fees.

  While renting made life easy, the Andreotti family began weighing the pros and cons of purchasing a flat, in the same building, that became available in June 2020. In the past three years, the real estate market had softened somewhat, and the cost of the flats were stable. The idea of home ownership as a form of pension investment appealed to the couple. The monthly rents could be used for mortgage payments instead.

  While searching for the right property they found a nice apartment with 200 square meters, very close to Diagonal-Numancia, one of the best locations of the city.

  The apartment was owned and been promoted by a state-owned construction company and was offering to type of alternatives:

Option A: renting the apartment with a perpetual contract, meaning for ever and ever. The Andreotti family thought that could be a good solution for them.

The family was very happy living in that area, and they had the chance to live there forever at an offered price of 1.600€ per month. The contract contained a clause stating that the rent price will be growing at a 0.1% monthly.

At the same time, they were not forced to ask for a loan, which represented a heavy weight in Mr. Andreotti ́s shoulders.

Option B: consisted in acquiring the property with a mortgage scheme for 40 years. The ownership was demanding an initial down payment of 1.000.000€. The total price of the apartment was still not clear, it seems there was some space for negotiation.

Mr. Andreotti new that the interest applicable rates were very attractive, around 2.4% compounded monthly, this is supposed to be the market rate for this type of activities.

Mr. Andreotti is fixing the maximum amount he can pay monthly in 2.000€.

1. 1) What is the maximum amount that Mr. Andreotti should pay? Show the calculations and explain why. (15 points)

2. 2) What is the total amount that Mr. Andreotti will pay in total after 40 years? (15 points)

3. 3) What is the present value of the rental contract offered by the owner as option A? (15 points)

4. 4) Mr. Andreotti believes that he might be interested in selling the apartment in 40 years’ time, this is when he is planning to retire.

   If the interest rates remain at the existing level, what will be the price of the apartment in that moment? (15 points)

5. 5) Mr. Andreotti is very happy for knowing how to calculate future values and present values, because this helps him in taking this type of decisions. Having said that he wonders what the future value of the rental contract could be. Can you help him? Explain your answer and show your calculations. (10 points)

6) We are still thinking that the price of the apartment is very expensive, we believe we could convince the bank of making payments only once a year, at the end of the year. The interest rate would still be the same 2.4%, how much money have we saved with this action?

a) In the payments for each year? b) in the total amount paid for the whole period? c) what is the present value of the savings?

(15 points)

7)There is a risk according to Mr. Andreotti that the interests may rise after the first 5 years. If this is the case, and the new interest rate is 5%, just after the first 5 years, how much will then be the monthly payments for the remaining 35 years of mortgage? (Hint the total initial value of the loan is depends of the offered purchase price in point 2). Explain your answer and show your calculations. (15 points)

Rubrics

Points are at the end of each question.

For the past several years, Steffy Lopez has operated a part-time consulting business from his home. As of July 1, 20Y2, Steffy decided to move to rented quarters and to operate the business, which was to be known as Diamond Consulting, on a full-time basis. Diamond entered into the following transactions during July:

Record the following transactions on Page 2 of the journal:

For the past several years, Steffy Lopez has operated a part-time consulting business from his home. As of July 1, 20Y2, Steffy decided to move to rented quarters and to operate the business, which was to be known as Diamond Consulting, on a full-time basis. Diamond entered into the following transactions during July:

Record the following transactions on Page 2 of the journal:

SPSS Module 5 Assignment—Independent t Test

General Instructions:   In this assignment, we will be examining 2 Independent t tests and interpreting the results. As with previous assignments, the Aspelmeier and Pierce texts does a wonderful job of explaining how to actually run the tests in Chapter 7. Follow their instructions for interpretation of these test as you complete this assignment. Once again I have run the test and given you the SPSS output you will need to complete this assignment.

Independent t test:

The researchers want to compare older females to younger females on their ratings of Loyalty. Also, researchers want to compare Freshman and Sophomores on their reported number of friends. As we learned from the text and the PPTs, we know these research situations require the use of the Independent t Tests. Here are the researchers’ hypotheses:

The researchers think that older females will report more loyalty with their closest female friend than will younger females.

The researchers also believe that Freshmen will report having more friends that Sophomores.

Part 1—The Analyses

For this assignment, I’ve run 2 Independent t Tests: one comparing older and younger females on loyalty and one comparing Freshmen and Sophomores on number of friends.

Output:

Hypothesis One Independent T-Test

Hypothesis Two Independent T-Test

Part 2—The APA Write-Up Instructions

               As with previous assignments, the American Psychological Association (APA) has standards for how statistical results should be presented. While the actual word choice varies, there are several essential components that are common among all presentations of statistical results and interpretations. Use the following instructions for ALL APA write-ups required for this course:

For each analysis, use the following steps to write a complete description of results in proper APA format.

State what hypothesis was tested.

State what test was used.

What decision did you make? Reject the null or retain (fail to reject) the null.

Were the groups significantly different from each other?

Report the means and standard deviations for each group.

Put numbers in APA format:

General Format: symbol for the test (df)= obtained value, p> or < significance level

Specific for t Tests: t(99)=1.98, p<.05

After this you need to put either equal variances assumed OR equal variances not assumed depending on the results of the Levene’s Test

Report Effect Size (if known)

Example:

        Adolescent males were expected to score significantly higher on a measure of aggression than were adolescent females. An independent t test was used to test the hypothesis leading to the rejection of the null hypothesis. Adolescent males (M=14.67, SD=2.35) were significantly more aggressive than were adolescent females (M=9.65, SD=1.59), t(78)=3.93, p<.05, equal variance assumed.

Since we ran 2 analyses, you will do 2 write-ups for this assignment. Remember to use chapter 7

Hypothesis One: The researchers think that older females will report more loyalty with their closest female friend that will younger females.

Answer the following questions

What is the null hypothesis tested?__________________________

Can we assume equal variances? (Was the Levene’s Test for Equality of Variance significant or not significant?)

Write up the results for the Independent t Test for Hypothesis One below:

Hypothesis Two: The researchers also believe that Freshmen will report having more friends that Sophomores.

Answer the following questions

What is the null hypothesis tested?__________________________

Can we assume equal variances? (Was the Levene’s Test for Equality of Variance significant or not significant?)

Write up the results for the Independent t Test for Hypothesis Two below:

Programming Project 3

Home Sales

Program Behavior

This program will analyze real estate sales data stored in an input file. Each run of the program should analyze one file of data. The name of the input file should be read from the user.

Here is a sample run of the program as seen in the console window. User input is shown in blue:

Let's analyze those sales!

Enter the name of the file to process? sales.txt

Number of sales: 6

Total: 2176970

Average: 362828

Largest sale: Joseph Miller 610300

Smallest sale: Franklin Smith 199200

Now go sell some more houses!

Your program should conform to the prompts and behavior displayed above. Include blank lines in the output as shown.

Each line of the data file analyzed will contain the buyer's last name, the buyer's first name, and the sale price, in that order and separated by spaces. You can assume that the data file requested will exist and be in the proper format.

The data file analyzed in that example contains this data:

Cochran Daniel 274000
Smith Franklin 199200
Espinoza Miguel 252000
Miller Joseph 610300
Green Cynthia 482370
Nguyen Eric 359100

You can download that sample data file here to test your program, but your program should process any data file with a similar structure. The input file may be of any length and have any filename. You should test your program with at least one other data file that you make.

Note that the average is printed as an integer, truncating any fractional part.

Your program should include the following functions:

read_data - This function should accept a string parameter representing the input file name to process and return a list containing the data from the file. Each element in the list should itself be a list representing one sale. Each element should contain the first name, last name, and purchase price in that order (note that the first and last names are switched compared to the input file). For the example given above, the list returned by the read_data function would be:

[['Daniel', 'Cochran', 274000], ['Franklin', 'Smith', 199200], ['Miguel', 'Espinoza', 252000], ['Joseph', 'Miller', 610300], ['Cynthia', 'Green', 482370], ['Eric', 'Nguyen', 359100]]

Use a with statement and for statement to process the input file as described in the textbook.

compute_sum - This function should accept the list of sales (produced by the read_data function) as a parameter, and return a sum of all sales represented in the list.

compute_avg - This function should accept the list of sales as a parameter and return the average of all sales represented in the list. Call the compute_sum function to help with this process.

get_largest_sale - This function should accept the list of sales as a parameter and return the entry in the list with the largest sale price. For the example above, the return value would be ['Joseph', 'Miller', 610300].

get_smallest_sale - Like get_largest_sale, but returns the entry with the smallest sale price. For the example above, the return value would be ['Franklin', 'Smith', 199200].

Do NOT attempt to use the built-in functions sum, min, or max in your program. Given the structure of the data, they are not helpful in this situation.

main - This function represents the main program, which reads the file name to process from the user and, with the assistance of the other functions, produces all output. For this project, do not print output in any function other than main.

Other than the definitions of the functions described above, the only code in the module should be the following, at the end of the file:

if __name__ == '__main__':
main()

That if statement keeps your program from being run when it is initially imported into the Web-CAT test environment. But your program will run as normal in Thonny. Note that there are two underscore characters before and after name and main.

Include an appropriate docstring comment below each function header describing the function.

Do NOT use techniques or code libraries that have not been covered in this course.

Include additional hashtag comments to your program as needed to explain specific processing.

A Word about List Access

A list that contains lists as elements operates the same way that any other lists do. Just remember that each element is itself a list. Here's a list containing three elements. Each element is a list containing integers as elements:

my_list = [[1, 2, 3, 4], [5, 6, 7, 8], [9, 10, 11, 12]]

So my_list[0] is the list [1, 2, 3, 4] and my_list[2] is [9, 10, 11, 12].

Since my_list[2] is a list, you could use an index to get to a particular value. For instance, my_list[2][1] is the integer value 10 (the second value in the third list in my_list).

In this project, the sales list is a list of lists. When needed, you can access a particular value (first name, last name, or sales price) from a particular element in the sales list.

Long Integer Addition

For this assignment you are to write a class that supports the addition of extra long integers, by using linked-lists. Longer than what is supported by Java's built-in data type, called long.

Your program will take in two strings, consisting of only digits, covert each of them to a linked-list that represents an integer version on that string. Then it will create a third linked-list that represents the sum of both of the linked lists. Lastly, it will print out the result of the sum.

Conceptual Example
For the string: "12", create a list: head->1->2->null
For the string: "34", create a list: head->3->4->null
Add the two lists to create a third list: head->4->6->null
print the resulting linked list as "46"
Where "->" represents a link.

Keep in mind that the conceptual example above is conceptual. It does suggest a certain implementation. However as you read on you will see that you have several options for implementing your solution. You need not use the suggested implementation above.

For this class you are to implement a minimum of three methods. They are:

1. A method called makeSDList() that takes in a string, consisting only of digits, as an argument, and creates and returns a linked-link representation of the argument string.

   The method has the following header:

   SDList makeSDList(String s) { }

   where s is a string, and SDList is the class name of the linked list.  

2. A method called addLists() that takes takes two lists, adds them together, and creates and returns a list that represents the sum of both argument lists.

   The method has the following header:

   SDList addLists(SDList c) { }

   wherec  linked-list of type SDList .

3. A method called displayList() that takes takes a list, prints the value of each digit of the list.  

   The method has the following header:

   void displayList() { }

Programming Notes

1. You need not add any methods you don't need.
2. You can add any methods use wish.
3. You can use any type of linked list like: singly-linked, doubly-linked, circular, etc.
4. You can choose you own list implementation such-as with or without sentinels, with head and/or tail points, etc.
5. Do not assume any maximum length for either addend.
6. You can assume that an each addend is a least one digit long.
7. You need not test for the null or empty string ("") cases.
8. The addends need not be the same length.

Programming Rules:

1. You are not allowed to change the signature of the three methods above.
2. You are not allowed to use arrays or ArrayLists anywhere in your solution.
3. You are not allowed to use any Java built-in (ADTs), such as Lists, Sets, Maps, Stacks, Queues, Deques, Trees, Graphs, Heaps, etc. Or make any class that inherits any of those ADTs.
4. You are to create your own node and list class. For your node and list class you can use the code that was used in the book, video and lecture notes related to the node and lists class examples.
5. You are only allowed to have one class for your nodes and one class for your lists.
6. You are not allowed to use Java Generics.
7. You can use any data type to represent the digits (in the node). However, each node must represent one and only one digit.
8. If hard-coding detected in any part of your solution your score will be zero for the whole assignment.

Submission Rules:

1. Submit only one Homework5.java file for all test cases. The starter file is names Homework5a.java so you will need rename the file before you begin submitting your solution.

2. Anything submitted to Mimir is considered to be officially submitted to me and is considered to be 100% your work. Even if it is not your last planned submission.

3. Any extra testing code that you wrote and used to do your own testing should be deleted from the file that gets used in the final grading. I emphasize the word deleted. Commenting out code is not sufficient and not considered deleted. It must be completely removed. English comments written to explain your code are perfectly fine.

STARTER CODE

import java.util.Scanner;  // Import the Scanner class

public class Homework5a {

  public static void main(String[] args) {

    SDList x, y, z;

    String a, b;

    Scanner input = new Scanner(System.in);  // Create a Scanner object

    System.out.print("A: ");

    a = input.nextLine();

    x = makeSDList(a);               // convert first string to a linked list

    x.displayList();                 // call function that displays list x

    System.out.print("B: ");   

    b = input.nextLine();

    y = makeSDList(b);               // convert second string to a linked list

    y.displayList();                 // call function that displays list z

    z = x.addLists(y);               // add lists x & y and store result in list y

    System.out.print("A+B: ");

    z.displayList();                 // call function that displays list z

  }

  public static SDList makeSDList(String s) {

  // put your solution here

    return null;

  }

}

class SDList {

  // put your solution here

  public SDList addLists(SDList c) {   

  // put your solution here

    return null; //replace if necessary

  }

  public void displayList() {

  // put your solution here

  }

}

I just want some ideas on how to write this essay, for instance, explanation of the case and what are some possible solution. thanks

“What Should I do, my friend?”

A former classmate of yours, Liz Theranos, has landed an internship position in the accounting department at Brompton Travels, a small closely held company. She tells you at one of your regular get-togethers at the local coffee shop, that she is excited and anxious to make a good impression as an accounting intern with the company because she wants to be offered a fulltime job at this company when she completes her internship.

The company’s operations are all related to tourism, and it has, as its principal asset, a large ocean front hotel. The company is primarily owned by the two directors who are brothers. Both of the brothers are actively engaged in the day-to-day running of the business. Liz gets along well with the directors and the small accounting staff even though she is only employed as an intern. Liz also is aware that the company had faced some serious cash flow difficulties shortly before she was appointed as an accounting intern. However, since Liz Theranos started working with the head accountant a remortgaging arrangement has, apparently, eased the financial pressure.

Recently, one of the managing brothers comes to Liz with a company check for $5,040 made payable to a design company, which he has already signed. Since the head accountant is currently on vacation for the next two weeks, and the internal policy requires that checks over $2,500 be signed by the head accountant and a director, he asks for Liz’s counter-signature. He explains that it is the deposit for the design work and furnishings for some of the hotel bedrooms. There is a formal invoice from a design studio, but you are still surprised as the head accountant before leaving on vacation had not made you aware that any such outlays had been planned. Nevertheless, given the explanation by the director and the supporting invoice, you counter-sign the check.

Later that day, out of curiosity, Liz decides to do some research into the design studio. She finds that the design company that has had a high level of indebtedness in the past. Liz also sees that the company secretary appears to be the daughter of one of the directors for whom she works. Two days later, the same managing director comes to you with another check, this time for $26,500, again needing only your counter-signature. There is a supporting invoice from the same design studio. You are hesitant, and the managing director seeing your hesitancy, explains that he is only asking you to counter-sign the check because the head accountant is still on vacation. He says that it is important to submit the check promptly so that it may be banked before April 15th. You ask why there is such urgency, particularly as there is no evidence of any design work having started. The managing director laughs and replies that the money should be 4/18 back in the hotel’s bank account by June 1 st . He further adds that the checks are needed urgently to settle some outstanding directors’ loan accounts at the design studio. Once again he asks you to not worry because the money should be returned to the hotel company account soon. Liz, once again reluctantly countersigns the check

Liz Theranos, your friend, whom you recall as always having high principles and Integrity, calls you to meet for coffee because she needs to speak confidentially with a good friend about something at work that’s bothering her. You agree to meet Liz for coffee.

Over coffee Liz shares with you the situation described above. Both you and Liz, recall Prof. Woods’ ethics class that you took in college and continue discussing how one can act honestly with regard to the dilemma posed by the recent director’s request and accounting functions at Liz Theranos’ employer? You immediately suggest to Liz that she should immediately quit. Liz tells you that she has seriously thought about quitting. However, besides needing the income, she has decided to stay because she really wants to get a full-time position with the company. The hotel/travel industry is the industry she really wants to work in as an accountant and after a couple of year’s full-time employment with Brompton Travel she would be in an ideal position to move on by getting a job with one of the major hotel chains. After a long stare, you tell her you understand and will help her structure a response that deals with the dilemma

Required:

? Help your friend Liz Theranos, who is just an intern at the company, deal with this ethical issue.

? Within a professional, word typed, 11-12 fonts, single-line spaced document

? Explain the ethical issues and how she should respond and, possible ramifications of Liz responding to this issue.

? Your final paper must be between 500-700 words.

Jackson Daniels graduated from Lynchberg State College two years ago. Since graduating from college, he has worked in the accounting department of Lynchberg Manufacturing. Daniels was recently asked to prepare a sales budget for the year 2016. He conducted a thorough analysis and came out with projected sales of 250,000 units of product. That represents a 25 percent increase over 2015. Daniels went to lunch with his best friend, Jonathan Walker, to celebrate the completion of his first solo job. Walker noticed Daniels seemed very distant. He asked what the matter was. Daniels stroked his chin, ran his hand through his bushy, black hair, took another drink of scotch, and looked straight into the eyes of his friend of 20 years. “Jon, I think I made a mistake with the budget.” “What do you mean?” Walker answered. “You know how we developed a new process to manufacture soaking tanks to keep the ingredients fresh?” “Yes,” Walker answered. “Well, I projected twice the level of sales for that product than will likely occur.” “Are you sure?” Walker asked. “I checked my numbers. I’m sure. It was just a mistake on my part.” Walker asked Daniels what he planned to do about it. “I think I should report it to Pete. He’s the one who acted on the numbers to hire additional workers to produce the soaking tanks,” Daniels said. “Wait a second, Jack. How do you know there won’t be extra demand for the product? You and I both know demand is a tricky number to project, especially when a new product comes on the market. Why don’t you sit back and wait to see what happens?” “Jon, I owe it to Pete to be honest. He hired me.” “You know Pete is always pressuring us to ‘make the numbers.’ Also, Pete has a zero tolerance for employees who make mistakes. That’s why it’s standard practice around here to sweep things under the rug. Besides, it’s a one-time event—right?” “But what happens if I’m right and the sales numbers were wrong? What happens if the demand does not increase beyond what I now know to be the correct projected level?” “Well, you can tell Pete about it at that time. Why raise a red flag now when there may be no need?” As the lunch comes to a conclusion, Walker pulls Daniels aside and says, “Jack, this could mean your job. If I were in your position, I’d protect my own interests first.” Jimmy (Pete) Beam is the vice president of production. Jackson Daniels had referred to him in his conversation with Jonathan Walker. After several days of reflection on his friend’s comments, Daniels decided to approach Pete and tell him about the mistake. He knew there might be consequences, but his sense of right and wrong ruled the day. What transpired next surprised Daniels. “Come in, Jack” Pete said. “Thanks, Pete. I asked to see you on a sensitive matter.” “I’m listening.” “There is no easy way to say this so I’ll just tell you the truth. I made a mistake in my sales budget. The projected increase of 25 percent was wrong. I checked my numbers and it should have been 12.5 percent. I’m deeply sorry; want to correct the error; and promise never to do it again.” Pete’s face became beet red. He said, “Jack, you know I hired 20 new people based on your budget.” “Yes, I know.” “That means ten have to be laid off or fired. They won’t be happy and once word filters through the company, other employees may wonder if they are next.” “I hadn’t thought about it that way.” “Well, you should have.” Here’s what we are going to do…and this is between you and me. Don’t tell anyone about this conversation.” “You mean not even tell my boss?” “No, Pete said.” Cwervo can’t know about it because he’s all about correcting errors and moving on. Look, Jack, it’s my reputation at stake here as well.” Daniels hesitated but reluctantly agreed not to tell the controller, Jose Cwervo, his boss. The meeting ended with Daniels feeling sick to his stomach and guilty for not taking any action.

What is the likely result of Pete’s “zero tolerance of employees making mistakes”?

Jonathan Walker is probably failing which of the Rest Stages?

If Jackson Daniels decides to do something, what is the one element missing in the chain of communication thus far?

-The failure to document the admission in writing

-The failure to report to the Comptroller

-The failure to report to Internal Audit

-The failure to report to Cwervo

FIN 370 AOL ASSIGNMENT

CASE ANALYSIS: The Case of the Junior Analyst

Name:_______________________

Colin was recently hired by Coleman Electronics as a junior budget analyst. He is working for the Venture Capital Division and has been given for capital budgeting projects to evaluate. He must give his analysis and recommendation to the capital budgeting committee.

Colin has a B.S. in accounting from CWU (2015) and passed the CPA exam (2017). He has been in public accounting for several years. During that time he earned an MBA from Seattle U. He would like to be the CFO of a company someday--maybe Coleman Electronics-- and this is an opportunity to get onto that career track and to prove his ability.

As Colin looks over the financial data collected, he is trying to make sense of it all. He already has the most difficult part of the analysis complete -- the estimation of cash flows. Through some internet research and application of finance theory, he has also determined the firm’s beta.

Here is the information that Colin has accumulated so far:

The Capital Budgeting Projects

He must choose one of the four capital budgeting projects listed below:  

Table 1

Table 1 shows the expected after-tax operating cash flows for each project. All projects are expected to have a 4 year life. The projects differ in size (the cost of the initial investment), and their cash flow patterns are different. They also differ in risk as indicated in the above table.

The capital budget is $20 million and the projects are mutually exclusive.

Capital Structures

Coleman Electronics has the following capital structure, which is considered to be optimal:

Cost of Capital

Colin knows that in order to evaluate the projects he will have to determine the cost of capital for each of them. He has been given the following data, which he believes will be relevant to his task.

(1)The firm’s tax rate is 35%.

(2) Coleman Electronics has issued a 10% semi-annual coupon bond with 8 years term to maturity. The current trading price is $990.

(3) The firm has issued some preferred stock which pays an annual 10% dividend of $100 par value, and the current market price is $105.

(4) The firm’s stock is currently selling for $36 per share. Its last dividend (D₀) was $3, and dividends are expected to grow at a constant rate of 6%. The current risk free return offered by Treasury security is 2.5%, and the market portfolio’s return is 12%. Coleman Electronics has a beta of 1.2. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 3%.

(5) The firm adjusts its project WACC for risk by adding 1.5% to the overall WACC for high-risk projects and subtracting 1.5% for low-risk projects.

Colin knows that Coleman Electronics executives have favored IRR in the past for making their capital budgeting decisions. His professor at Seattle U. said NPV was better than IRR. His textbook says that MIRR is also better than IRR.   He is the new kid on the block and must be prepared to defend his recommendations.

First, however, Colin must finish the analysis and write his report. To help begin, he has formulated the following questions:

1. What is the firm’s cost of debt?

2. What is the cost of preferred stock for Coleman Electronics?

3. Cost of common equity

(1) What is the estimated cost of common equity using the CAPM approach?

(2) What is the estimated cost of common equity using the DCF approach?

(3) What is the estimated cost of common equity using the bond-yield-plus-risk-premium approach?

(4) What is the final estimate for r_s?

4. What is Coleman Electronics’s overall WACC?

5. Do you think the firm should use the single overall WACC as the hurdle rate for each of its projects? Explain.

6. What is the WACC for each project? Place your numerical solutions in Table 2.

7. Calculate all relevant capital budgeting measures for each project, and place your numerical solutions in Table 2.

Table 2

8. Comment on the commonly used capital budgeting measures. What is the underlying cause of ranking conflicts? Which criterion is the best one, and why?

9. Which of the projects are unacceptable and why?

10. Rank the projects that are acceptable, according to Colin’s criterion of choice.

11. Which project should Colin recommend and why? Explain why each of the projects not chosen was rejected.

Instructions

1.Your answers should be Word processed, submitted via Canvas.

2.Questions 5, 8, 9, and 11 are discussion questions.

3.Place your numerical solutions in Table 2.

4.Show your steps for calculation questions.

Colin was recently hired by Coleman Electronics as a junior budget analyst. He is working for the Venture Capital Division and has been given for capital budgeting projects to evaluate. He must give his analysis and recommendation to the capital budgeting committee.

Colin has a B.S. in accounting from XXX (2015) and passed the CPA exam (2017). He has been in public accounting for several years. During that time he earned an MBA from Seattle U. He would like to be the CFO of a company someday--maybe Coleman Electronics-- and this is an opportunity to get onto that career track and to prove his ability.

As Colin looks over the financial data collected, he is trying to make sense of it all. He already has the most difficult part of the analysis complete -- the estimation of cash flows. Through some internet research and application of finance theory, he has also determined the firm’s beta.

Here is the information that Colin has accumulated so far:

The Capital Budgeting Projects

He must choose one of the four capital budgeting projects listed below:  

Table 1

Table 1 shows the expected after-tax operating cash flows for each project. All projects are expected to have a 4 year life. The projects differ in size (the cost of the initial investment), and their cash flow patterns are different. They also differ in risk as indicated in the above table.

The capital budget is $20 million and the projects are mutually exclusive.

Capital Structures

Coleman Electronics has the following capital structure, which is considered to be optimal:

Cost of Capital

Colin knows that in order to evaluate the projects he will have to determine the cost of capital for each of them. He has been given the following data, which he believes will be relevant to his task.

(1)The firm’s tax rate is 35%.

(2) Coleman Electronics has issued a 10% semi-annual coupon bond with 8 years term to maturity. The current trading price is $990.

(3) The firm has issued some preferred stock which pays an annual 10% dividend of $100 par value, and the current market price is $105.

(4) The firm’s stock is currently selling for $36 per share. Its last dividend (D₀) was $3, and dividends are expected to grow at a constant rate of 6%. The current risk free return offered by Treasury security is 2.5%, and the market portfolio’s return is 12%. Coleman Electronics has a beta of 1.2. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 3%.

(5) The firm adjusts its project WACC for risk by adding 1.5% to the overall WACC for high-risk projects and subtracting 1.5% for low-risk projects.

Colin knows that Coleman Electronics executives have favored IRR in the past for making their capital budgeting decisions. His professor at Seattle U. said NPV was better than IRR. His textbook says that MIRR is also better than IRR.   He is the new kid on the block and must be prepared to defend his recommendations.

First, however, Colin must finish the analysis and write his report. To help begin, he has formulated the following questions:

1. What is the firm’s cost of debt?

2. What is the cost of preferred stock for Coleman Electronics?

3. Cost of common equity

(1) What is the estimated cost of common equity using the CAPM approach?

(2) What is the estimated cost of common equity using the DCF approach?

(3) What is the estimated cost of common equity using the bond-yield-plus-risk-premium approach?

(4) What is the final estimate for r_s?

4. What is Coleman Electronics’s overall WACC?

5. Do you think the firm should use the single overall WACC as the hurdle rate for each of its projects? Explain.

6. What is the WACC for each project? Place your numerical solutions in Table 2.

7. Calculate all relevant capital budgeting measures for each project, and place your numerical solutions in Table 2.

Table 2

8. Comment on the commonly used capital budgeting measures. What is the underlying cause of ranking conflicts? Which criterion is the best one, and why?

9. Which of the projects are unacceptable and why?

10. Rank the projects that are acceptable, according to Colin’s criterion of choice.

11. Which project should Colin recommend and why? Explain why each of the projects not chosen was rejected.

Instructions

1.Your answers should be Word processed, submitted via Canvas.

2.Questions 5, 8, 9, and 11 are discussion questions.

3.Place your numerical solutions in Table 2.

4.Show your steps for calculation questions.