Introduction

The course project is a series of elements where you will examine the current standing of an organization’s compensation system. In the final element of the training program, you will provide recommendations to the organization on how the compensation program can be improved.

Directions

Students will conduct an analysis on the current state of the compensation system and address the current pay structure used. Reference should be made to job-based and person-based structure. Analysis should reference sources of information for job analysis, job evaluation, pay design, and pay levels.

The body of the paper will be 4-5 pages. This does not include extraneous pages like title page, reference page, appendices. APA formatting standards are required. A minimum of 5 scholarly resources need to be used. An example of a scholarly resource can be an interview with an HR professional or a peer reviewed article from a Park University Library Journal Database. Course materials and personal experience do not count. A formal third person tone is required.

Supplemental information (e.g. worksheets that are currently being used) can be presented in Appendices but do not count toward the body of the paper.

Note: Recommendations should not be made at this point – you will make these in Unit 8. This is an analysis of current standing. Keep in mind however, if an organization doesn’t have a set structure, the paper doesn’t end at that point. Student needs to include a discussion of the different methods that could be used. Again, recommendations will be made

Please also include at least 5 references

In your opinion is the US debt a problem for the United States or not? Given that monetary policy has an effect on interest rates, should monetary policy work with fiscal policy to reduce the impacts of debt? What are the pros and cons of monetary policy and fiscal policy working together? (Answer question based on the article below)

Article:

As Congress allocates trillions of dollars to support businesses and individuals impacted by the coronavirus pandemic, some project US debt skyrocketing to historical highs. This adds fuel to a long-running question: Does America’s growing debt load spell future trouble? In our view, focusing solely on the debt’s size doesn’t tell the whole story. By looking at the debt question differently, we think investors can defuse concerns about America’s allegedly ticking time bomb.

Even before the coronavirus dominated headlines, some worried about big deficits adding to America’s debt. In early May, US Treasury data show $25.1 trillion in total federal government debt outstanding. [i] While this figure includes intra-governmental holdings (i.e., money the government owes itself), even stripping this away leaves net public debt at a still-huge $19.1 trillion—nearly 2.5 times the amount on January 1, 2010. [ii]

In isolation, that big number doesn’t mean much. So to put this figure into perspective, many economists compare a country’s debt to its GDP. At the end of 2019, net public debt was 79.2% of US GDP—up from 52.3% a decade earlier and the biggest since the late 1940s. [iii] Moreover, coronavirus’ impact is almost assured to push the ratio far higher. Between Q1’s -4.8% annualized GDP decline (with worse likely in Q2) and rising debt as the government funds its coronavirus response, America’s debt-to-GDP ratio could exceed its post–World War II high of 106.1% in the not-so-distant future. [iv]

Large debt-to-GDP ratios inspire comparisons to countries like Greece, which defaulted multiple times in the past decade. But even these ratios alone don’t mean problems loom. What matters more: a country’s ability to meet interest payments. Governments don’t use GDP—an annual flow of economic activity—to meet those obligations. They use tax revenue. In fiscal year 2019, US interest payments accounted for about 10.8% of tax revenues. [v] This figure has been rising over the past 4 years, but it remains well below the 15%–18% range in effect during most of the 1980s–1990s. [vi] America had no trouble servicing its debt during these two decades. The economy boomed.

With Treasury yields historically low, many acknowledge financing debt today isn’t onerous—especially since the Treasury gets to refinance maturing debt at a cheaper rate. On May 5, 2010, the Treasury sold $24 billion in 10-year notes at a 3.51% interest rate. [vii] The Treasury effectively refinanced those at a mid-May 2020 auction of new 10-year notes. The interest rate? A far-lower 0.65%. [viii]

Which brings us to another point: Treasury bonds carry fixed rates, so rising rates don’t immediately threaten affordability. As of 12/31/2019, the weighted average maturity of US debt was nearly 70 months—higher than the 60-month historical average over the past 40 years. [ix] Hence, rates would need to rise significantly from here—and stay there for years as Treasury refinanced maturing bonds—to hit costs materially. That doesn’t seem likely today. Demand is strong, putting downward pressure on yields. With sovereign-debt yields low globally—Japan and Europe have lower rates than America—US debt remains more attractive in comparison.

Moreover, interest rates tend to move with inflation, and the latter looks unlikely to surge in the near future. Even after the spread widened between long and short rates since February’s end, the US yield curve is still around its flattest over the past 10 years. That weighs on bank lending and, relatedly, money supply growth—a key inflation component. When investors anticipate higher inflation to come, they will demand a higher premium to compensate for their loss in purchasing power. That isn’t likely to be the case with inflation benign. US debt could be on its way to making new records, but that doesn’t mean new problems will come with it.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

1. Bronx Lebanon Diagnostic Care has the following cost structure:

Fixed Costs $800,000

Variable cost per procedure $35

Charge (revenue) per procedure $110

Assume that the Bronx Lebanon Diagnostic Care expects to perform 7,500 procedures in the coming year.

a. Construct the groups base case projected P & L statement.

Insert your response here.

b. What is the group’s contribution margin?

Insert your response here.

c. What is the breakeven point? (in number of procedures)

Insert your response here.

d. Let say they contract with one HMO for all 7,500 procedures and the plan proposes a 20 percent discount from charges. Answer questions a,b,c under these conditions. Insert your response here.

Stock: Terreno Realty Corporation (TRNO)

Rd=2.40% (cost of debt)
Re=4.41% (cost of equity)
WACC=3.94%

This is the full question, I only need part 3 two-stage FCFE:

Using the cost of equity, cost of debt, and WACC you computed in PHASE I, compute absolute valuation measures for the value of your stock. You must complete all four valuation measures. You may adjust your estimates of re, rd, and WACC if you find that a different estimate makes sense. However, you must use the same cost of equity for all four calculations (cost of equity is the same no matter which valuation model is used).
1. DDM: Compute the DDM estimated value using your estimate of r from PHASE I and your estimate of g. Also, produce a Sensitivity Analysis Table like the one in my lecture notes. Show the stock price for small changes in g and r. Also, use the current stock price and your estimate of r to compute the implied growth rate for you stock.
2. Two-stage DDM: Use your estimate of short-term and long-term growth in dividends to value the stock. Explain how you came up with the estimates of g. If your stock does not pay dividends, use one of the models from the textbook for computing DDM on non-dividend stocks.
3. Two-stage FCFE: Use your estimates of short-term and long-term growth in free cash flow to value the stock. Explain how you came up with the estimates of g. While it is possible to use different growth rates for FCFE and DDM, for most companies both dividends and free cash flow to equity grow at the same rate in the long run.
4. Two-stage FCFF. For 2-stage FCFF, use the WACC as your cost of capital and estimate the short- term and long-term values of g for the cash flows to the firm. Compute both the value of the entire firm as well as the value of equity using this model (subtract the value of debt from the value of the firm to get the value of equity). Note that your estimates of g for the FCFF calculation must be lower than g for FCFE and DDM (because of leverage).

Constructing and Assessing Income Statements Using Cost-to-Cost Method
Assume General Electric Company agreed in May 2016 to construct a nuclear generator for NSTAR, a utility company serving the Boston area. General Electric Company estimated that its construction costs would be $360 million. The contract price of $450 million is to be paid as follows: $150 million at the time of signing; $150 million on December 31, 2016; and $150 million at completion in May 2017. General Electric incurred the following costs in constructing the generator: $144 million in 2016 and $216 million in 2017.

a. Compute the amount of General Electric's revenue, expense, and income for both 2016 and 2017, and for both years combined, under the cost-to-cost revenue recognition method.
Enter dollar amounts in millions.

1. When the short-run marginal cost curve is upward-sloping,

The average total cost curve is upward-sloping

There are diseconomies of scale.

The average total cost curve is above the marginal cost curve.

Diminishing returns occurs with greater output.

2. Marginal revenue is the change in

Group of answer choices

Average revenue when output is changed.

Average revenue when price is changed.

Total revenue when output is changed.

Total revenue when price is changed.

3.The shutdown point occurs where price equals the minimum of

AFC.

MR.

AVC.

ATC.

4. Economic profit is the difference between

Accounting profit and explicit costs.

Accounting profits and external costs.

Total costs and total economic costs.

Total revenues and total economic costs.

5. If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can

Not sell additional walnuts unless the firm lowers its price.

Sell more only by increasing its advertising budget.

Sell an additional pound of walnuts at $4.99.

Not sell additional walnuts at any price because the market is at equilibrium.

6. Profit per unit is equal to

TR - ATC.

P - MR.

TR - TC.

P - ATC.

Integrative Exercise
Relevant Costing, Cost-Based Pricing, Cost Behavior, and Net Present Value Analysis for NoFat

Special Sales Offer Relevant Analysis

NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFat's controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)—a toxic waste cleanup company—offered to buy 10,000 pounds of olestra from NoFat during December for a price of $2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that "This is another way to use our expensive olestra plant!"

The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows:

In addition, Allyson met with several of NoFat's key production managers and discovered the following information:

1. The special order could be produced without incurring any additional marketing or customer service costs.
2. NoFat owns the aging plant facility that it uses to manufacture olestra.
3. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year.
4. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra.
5. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the $1,000 cost of the inspection team.

Required:

1. Conduct a relevant analysis of the special sales offer by calculating the following:

a. The relevant revenues associated with the special sales offer
$

b. The relevant costs associated with the special sales offer
$

c. The relevant profit associated with the special sales offer (Enter loss, if any, as negative amount.)
$

2. Based solely on financial factors, explain why NoFat should accept or reject PU's special sales offer.

The relevant cost is   than the relevant revenue offered by PU, making the relevant (or incremental) profit  —so,  

3. Describe at least one qualitative factor that NoFat should consider, in addition to the financial factors, in making its final decision regarding the acceptance or rejection of the special sales offer.

A potentially important qualitative factor is  , namely the public’s perception of olestra’s safety. In particular, some (possibly large) percentage of NoFat’s customers might be concerned that olestra is not a safe ingredient for human ingestion, given its apparent effectiveness in cleaning up toxic waste sites. As a result, the acceptance of PU’s special sales offer might significantly decrease NoFat’s regular sales of olestra.

Cost-Based Pricing

Assume for this question that NoFat rejected PU’s special sales offer because the $2.20 price suggested by PU was too low. In response to the rejection, PU asked NoFat to determine the price at which it would be willing to accept the special sales offer. For its regular sales, NoFat sets prices by marking up variable costs by 10%.

4. If Allyson decides to use NoFat’s 10% markup pricing method to set the price for PU’s special sales offer,

a. Calculate the price that NoFat would charge PU for each pound of olestra. Round your answer to the nearest cent.
$ per unit

b. Calculate the relevant profit that NoFat would earn if it set the special sales price by using its mark-up pricing method. Enter loss, if any, as negative amount. (Hint: Use the estimate of relevant costs that you calculated in response to Requirement 1b.)
$

c. Explain why NoFat should accept or reject the special sales offer if it uses its mark-up pricing method to set the special sales price.

NoFat should   the special sales offer if PU will agree to pay the price of $ per unit that results from NoFat’s cost-plus pricing formula.

Incorporating a Long-Term Horizon into the Decision Analysis

Assume that Allyson's relevant analysis reveals that NoFat would earn a positive relevant profit of $10,000 from the special sale (i.e., the special sales alternative). However, after conducting this traditional, short-term relevant analysis, Allyson wonders whether it might be more profitable over the long-term to downsize the company by reducing its manufacturing capacity (i.e., its plant machinery and plant facility). She is aware that downsizing requires a multiyear time horizon because companies usually cannot increase or decrease fixed plant assets every year. Therefore, Allyson has decided to use a 5-year time horizon in her long-term decision analysis. She has identified the following information regarding capacity downsizing (i.e., the downsizing alternative):

1. The plant facility consists of several buildings. If it chooses to downsize its capacity, NoFat can immediately sell one of the buildings to an adjacent business for $30,000.
2. If it chooses to downsize its capacity, NoFat's annual lease cost for plant machinery will decrease to $9,000.

Therefore, Allyson must choose between these two alternatives: Accept the special sales offer each year and earn a $10,000 relevant profit for each of the next 5 years or reject the special sales offer and downsize as described above.

5. Assume that NoFat pays for all costs with cash. Also, assume a 10% discount rate, a 5-year time horizon, and all cash flows occur at the end of the year. Use an NPV approach to discount future cash flows to present value. To determine NPV, use the Exhibit to locate the present value of $1 to be multiplied by the cash inflow in Year 1.

a. Calculate the NPV of accepting the special sale with the assumed positive relevant profit of $10,000 per year (i.e., the special sales alternative). Round your answer to the nearest dollar.
$

b. Calculate the NPV of downsizing capacity as previously described (i.e., the downsizing alternative). Round your answer to the nearest dollar.
$

c. Based on the NPV of Calculations a and b, identify and explain which of these two alternatives is best for NoFat to pursue in the long term.

Based on the NPV of Requirements 5a and 5b, the   alternative (i.e., Requirement 5b) appears to be the best long-term alternative for NoFat to pursue because it is estimated to provide a  .

Problem Set 8

Delta Corporation has the following capital structure:

Calculate the weighted average cost of capital (WACC) and use it for the cost of capital interest rate for the rest of this problem. In other words, the WACC becomes the discount rate for the net present value calculations.

Assume Delta has three different (mutually exclusive) projects that are being considered. Listed below are the cash flows for the projects.

For each of the projects shown above, calculate the Payback Period, Internal Rate of Return (IRR), and Net Present Value (NPV). Make a table in APA format and label it Table 1. In this table show the three projects and the values for payback period, IRR, and NPV. Write a one paragraph explanation of which projects Delta management should choose and why. Explain whether the different calculation methods give you different results on which project(s) should be chosen and why.

*List for years 0-5 for the payback period, IRR and the NPV, Label each clearly.