Have anyone worked with case study
Continental Carriers, Inc

Problem info: In may 1988 Elizabeth thorp treasurer of CCI was considering advantages and disadvantages of several alternative methods of financing CCI’s acquisition of Midland Freight Inc. At a recent meeting of the board of directors there had been substantial disagreement as to the best method of financing the acquisition. After the meeting Ms. Thorp was asked by John Evans president of CCI to assess the arguments presented by the various directors and to outline a position to be taken by management at the June directors meeting. Owners of midland agree to sell for $50 mil in cash. Midland would add $8.4 mil EBIT to CCI annually. One idea to raise funds, barring major market decline, new common stock could be sold at $17.75 per share and after fees net proceeds would be $16.75. If common stock was used, it would require issuance of 3 million new shares. CCI also sell $50 million in bonds to insurance company at 10% maturing in 15 years. An annual sinking fund of $2.5 mil would be required, leaving $12.5 million outstanding at maturity. Given tax deductibility of bond interest and CCI current marginal tax rate of 40% (34% federal corp income tax, 9% deductible state and local corp income tax) the 10% rate was equivalent to 6% on after tax basis. In contrast she felt 16.75 share and a dividend of $1.50 a share would cost CCI nearly 9%. Director 1 pointed out that this doesn’t include annual payment to sinking fund and argued that it represented 8% of average size of bond issue over 15 year life and felt the stock issue had a smaller cost than the bonds. Director 2 argue for issuance of common stock because CCI would net 10% or $5 million a year after tax from acquisition. Yet if an additional 3 million shares of common stock were issued the additional dividend requirement at $1.50 a share would be only $4.5 million a year. Director 3 argues stock was a steal at $17.75 a share. CCI policy of retained earnings had built book value of firm to $45 a share as of Dec 1987. Felt book value of assets was also understated because current value of CCI assets was below replacement cost. Dilution in of stocks value measured in terms of EPS not book or replacement value. Post acquisition earnings would be $34 mil before tax and interest. If common stock sold, EPS diluted to $2.72. Sole use of debt would increase earnings to $3.87. Sinking fund equaled $0.56 share each year. Director 4 said could also sell preferred stock. 50,000 shares bearing dividend of $10.50 per share and a par value of $100 per share.

Thank you.

Could help with this answer.

Assume CCI already had $80 million of debt outstanding at the time of the case situation. How would the interest expense and sinking fund on the $20 million of outstanding debt be incorporated into the EBIT analysis, if at all?

You are a team of financial analysts of the Gadget Division of The FGM Corporation, the largest

multinational automobile manufacturer in the world. You are asked to evaluate a project

proposal regarding the production of a new voice-activated electronic device – Universal

Direction Assistance (UDA). This upgradeable device, which incorporates the most advanced

computer and satellite wireless technology, provides directions and real time traffic reports that

guide automobile drivers in choosing the preferred route to their destinations. This device can be

used in any country with specialized software that contains local geographical information and

real time traffic report (where technology is available) that are translated into the chosen

language of the driver. UDA will be sold as an option for the FGM cars and trucks. A

comprehensive market analysis on the potential demand for this device was conducted last year

at a cost of $10M.

According to the results of the market analysis, the expected annual sale volumes of UDA are

1.8M units for the first two years, and drop to 1.5M units for the final two years of this 4-year

project. Unit prices are expected to be $600 for the first two years, and then fall to $450, due to

the introduction of similar devices by competitors, afterwards. Unit production costs are

estimated at $500 in the first year of the project. The growth rate for unit production costs are

expected to be 4% per year over the remaining life of the project.

In addition, the implementation of the project demands current assets to be set at 12% of the

annual sale revenues, and current liabilities to be set at 8% of the annual production costs.

Besides, the introduction of UDA will increase the sales volume of cars and trucks that leads to

an increase in the annual after-tax cash flow of FGM by $21M.

The production line for UDA will be set up in a vacant plant that was built by FGM at a cost of

$30M twenty years ago. This fully depreciated plant has a current market value of $20M, and is

expected to be sold at the termination of this project for $12M in four years. The machinery for

producing UDA has an invoice price of $120M, and its modification costs another $15M. The

machinery has an economic life of 4 years, and is classified in the MACR 3-year class for

depreciation purpose. The machinery is expected to have zero salvage value at the termination

of the project.

The cost of capital (or discount rate) for this project is assumed to be 15%. The estimated

marginal tax rate of The FGM Corporation is 30%.

Questions:

A.

In light of the appropriate objective of a firm, what would you recommend on the UDA

Project basing on the (base) scenario described above? Why?

B.

Would your recommendation be changed if the unit price of the UDA only falls to $550

2

upon the entrance of competitive products after two years into this project? What would

be your recommendation if the unit price falls to $350 after two years? Why?

C.

What would be your recommendation on this UDA Project if there is 75% chance that the

base scenario (i.e., unit price falls to $450 after two years) will occur, 20% chance that

the optimistic scenario (i.e., unit price only falls to $550 after two years) will occur, and

5% chance that the pessimistic scenario (i.e., unit price falls to $350 after two years) will

occur? Why?

Jacob Swimming School

Business Background

Jacob Swimming School provides swimming courses around Surfers Paradise in Queensland, Australia. The business began in 2000 with the intention of bringing swimming into the lives of as many people as possible. Both Jacob Teelan and Kiren Goodman had swum around the ocean beaches of Surfers Paradise since they were small children. After finishing school both became professional swimming instructors. After working for a number of years for another company, they decided to take a risk and open up their own business.

The swimming Course

The swimming course offered by Jacob Swimming School is a 3-day intensive program that allows beginner to develop their swimming skills. The swim course is divided into three segments.

Academic training – Giving students the basic principles and knowledge needed for safe and enjoyable swimming in the sea.

Pool training – Which will teach students the basic skills of swimming.

Open Water training – Allows students to demonstrate their mastery of these skills and practice them in an open water environment.

Jacob is considering to build up a swimming pool near the beach to create a tourist attraction like the swimming pool in Bondi Beach in Sydney. He believes the project could be quite profitable. The local council is also interested in this project. They believe it could boost number of tourist, hence energies small businesses and land value. The local council advised Jacob he will receive the approval for this project. However, an environment group is strongly against this idea and claim this project would ruin the eco-system. Flyers explaining the negative impact to environment from this project have been delivery to every premise. If sufficient local residents signed up against the project, the local council would have to change their mind. So, the future is not very clear.

The operation information is displayed below:

According to the agreement, Jacob would have full control of this project and would receive all the profit generated within the first 5 years. However, after 5 years of operation, he has to transfer the full ownership of the swimming pool to the local council. In return, the local council will pay Jacob a bonus valued at $100,000 for his entrepreneurship.

The initial investment to build up the pool is $1,000,000. Which will be fully depreciated after 5 years.

Estimated customer for the first 2 years are 210,000 per year. As the new pool become famous, estimated customer for year 3, 4 and 5 would be increased to 350,000.

Jacob plans to charge each visit $3 for the first 2 years and $4 for the last 3 years

Each visitor is provided with a complementary towel which cost $0.5 in year 1 and year 2. The cost will increase to $1 per towel for the last 3 years

Total operational cost is $250,000 per year for all five years

Major maintenance will be conducted in year 2 and year 4. The cost for each maintenance is $15,000

Tax rate is 30%

Discount rate (10%) table

Required:

a) Advise Jacob whether he should take this project based on your NPV calculation.

b) What are the limitations for only using NPV analysis to evaluation a strategic project?

c) Do you believe Jacob should invest on this project? Justify your answer by considering qualitative factors.

Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $3.9 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $4.7 million. In five years, the aftertax value of the land will be $5.1 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $31.52 million to build. The following market data on DEI’s securities is current:

DEI uses G.M. Wharton as its lead underwriter. Wharton charges DEI spreads of 9 percent on new common stock issues, 7 percent on new preferred stock issues, and 5 percent on new debt issues. Wharton has included all direct and indirect issuance costs (along with its profit) in setting these spreads. Wharton has recommended to DEI that it raise the funds needed to build the plant by issuing new shares of common stock. DEI’s tax rate is 38 percent. The project requires $1,150,000 in initial net working capital investment to get operational. Assume Wharton raises all equity for new projects externally.

RISK MANAGEMENT

Background

Paul , age 55, immigrated to Canada from Scotland in his 20s. Over the years, he built a small chain of budget-rate hotels in the GTA and has become wealthy beyond his dreams. His private corporation, Nessie Inc., owns the hotels and, in some cases, the land on which the hotels are built.

Paul and his first wife divorced years ago and she returned to Scotland. He has no ongoing obligations toward his first wife and is now happily married to Lisa, 45. He has a son, Gavin, 28, from his first marriage and a daughter Leslie, 17, with Lisa. Gavin is actively involved in his father’s business and Lisa wants Leslie to become involved also.

Information Gathering Meeting

At your first meeting with Paul, you gathered the following information:

Paul

Lisa

• Not employed
• Serves on the board of the Toronto General Hospital Foundation
• Home jointly owned with Paul
• Other Personal Assets:

Gavin

• Employed by Nessie Inc.; reports to a General Manager who reports to Paul

Leslie

• Full-time student. Note: Leslie has a new boyfriend, 25, who the family thinks may be a drug dealer.

Planning to Date

On her marriage to Paul, Lisa purchased a Universal Life policy with a death benefit of $500,000 and named Paul beneficiary. She did not name a contingent beneficiary. Paul and Lisa recently purchased a joint and last-to-die Term-to-100 insurance policy with a death benefit of $2,000,000. Their respective estates are beneficiary. This is their only personal life insurance.

Paul and Lisa have both named each other as beneficiaries on their RRSPs.

Paul plans to expand his business and projects that Nessie will continue to grow at 6 - 8% per year. He expects that Gavin will take over the business eventually, as long as he proves himself capable. He hasn’t given any thought as to whether Leslie will eventually join Nessie.

Paul and Lisa have met with their lawyer to discuss their wills but the wills haven’t been drawn up yet.

• In Scenario Two Paul and Lisa are still living and looking for detailed estate planning

Scenario---Paul and Lisa’s accident was just a terrible nightmare. They are still living but the nightmare has scared them both. They want to make sure that an appropriate estate plan is in place as soon as possible.

QUESTION :

What steps should Paul take to further facilitate the viability of Nessie in the event of his sudden death? (300 words)

RISK MANAGEMENT

Background

Paul , age 55, immigrated to Canada from Scotland in his 20s. Over the years, he built a small chain of budget-rate hotels in the GTA and has become wealthy beyond his dreams. His private corporation, Nessie Inc., owns the hotels and, in some cases, the land on which the hotels are built.

Paul and his first wife divorced years ago and she returned to Scotland. He has no ongoing obligations toward his first wife and is now happily married to Lisa, 45. He has a son, Gavin, 28, from his first marriage and a daughter Leslie, 17, with Lisa. Gavin is actively involved in his father’s business and Lisa wants Leslie to become involved also.

Information Gathering Meeting

At your first meeting with Paul, you gathered the following information:

Paul

Lisa

• Not employed
• Serves on the board of the Toronto General Hospital Foundation
• Home jointly owned with Paul
• Other Personal Assets:

Gavin

• Employed by Nessie Inc.; reports to a General Manager who reports to Paul

Leslie

• Full-time student. Note: Leslie has a new boyfriend, 25, who the family thinks may be a drug dealer.

Planning to Date

On her marriage to Paul, Lisa purchased a Universal Life policy with a death benefit of $500,000 and named Paul beneficiary. She did not name a contingent beneficiary. Paul and Lisa recently purchased a joint and last-to-die Term-to-100 insurance policy with a death benefit of $2,000,000. Their respective estates are beneficiary. This is their only personal life insurance.

Paul and Lisa have both named each other as beneficiaries on their RRSPs.

Paul plans to expand his business and projects that Nessie will continue to grow at 6 - 8% per year. He expects that Gavin will take over the business eventually, as long as he proves himself capable. He hasn’t given any thought as to whether Leslie will eventually join Nessie.

Paul and Lisa have met with their lawyer to discuss their wills but the wills haven’t been drawn up yet.

• In Scenario Two Paul and Lisa are still living and looking for detailed estate planning

Scenario---Paul and Lisa’s accident was just a terrible nightmare. They are still living but the nightmare has scared them both. They want to make sure that an appropriate estate plan is in place as soon as possible.

QUESTION :

What steps should Paul take to further facilitate the viability of Nessie in the event of his sudden death? (300 words)

Which of the following is NOT a red flag of related party transaction that may be a sham?

Patient is a 10-year-old male ,good health. Felt pain in his left calf at lunchtime despite not being injured.

Ingrown hair in the location of the pain. That evening small amount of pus from the ingrown hair.

Next morning, found cellulitis on the calf and more pus. By the afternoon, the area of the cellulitis had grown significantly and the patient rushed to the medical center.

Vital signs measured, including pulse, respiration, blood pressure and temperature. All the signs were within the normal limits.

Physical examination of calf, which was red and warm to the touch but with no area of obvious fluctuance. No lymphadenopathy was observed. The physician punctured the central area of the cellulitis, near the area that the patient indicated was the ingrown hair, three times with a 20-gauge needle but no pus was drained. The patient was referred to surgery service and the surgeon gave him 2 g of ceftriaxone intramuscularly and started him on oral cephalexin. The patient returned to the medical center 48h later with obvious area of fluctuance in the centre of the cellulitis area and reported low-grade fever during the past 48 hours. It was obvious that pus is present.

Which factors from the case description have to be taken into consideration when analysing the case?

A survey of 500 major U.S. manufacturing plants was completed in order to gain information about water pollution near each plant facility. Data have been collected on the amount of WATER POLLUTANTS (PL) found within ½ mile of each plant. (No plants were within 50 miles of each other). The pollutants were measured as the average parts per million based on each gallon of water sampled for each plant. For each plant, the AMOUNT OF WATER (W) used and the AVERAGE RAINFALL (R) was recorded. Plants were classified to be within one of four TYPES (chemical, paper, consumer durable goods, others) and the plant AGE (under 15 years; 15 years or older) was noted. A scale for LOCAL ENVIRONMENTAL REGULATIONS ENFORCEMENT was made (Strong enforcement; Moderate enforcement; Minimal to No Enforcement). Using these data, (20 points) a. Specify a linear model that would allow you test the effects of the impact of each variable above. b. Interpret each parameter in your model. c. Show how you would test the hypothesis that chemical and paper plant pollution is equal. d. How would you test the impact of local regulation enforcement on plant’s pollution

Pretend for a minute that you are advising your candidate for President of the USA. As you near your first debate against your opposing party nominee, you realize that economic growth is going to be a main topic.

The catch is that you are not going to be debating war, health care, etc. You are restricted to showing who did a better job growing our economy and can only use GDP. You can use variations of GDP, like GDP per capita, percentage change in GDP, GDP compared to another nation, etc.

Now think you are the Republican Advisor, t demonstrate how economic growth was superior under President Trump (2017-present).

Keep in mind that you do not need to use the entire term of their presidency to make your point. For instance, perhaps you feel that President Bush is responsible for GDP growth in 2009 due to his actions in term. Similarly President Obama may be responsible for some of the growth under President Trump.

Your job is to write up a short analysis using historic GDP, to support your candidate in answering who is better at creating economics growth, Republicans or Democrats.