The GFA Company, originally established 16 years ago to make footballs, is now a leading producer of tennis balls, baseballs, footballs, and golf balls. Nine years ago, the company introduced “High Flite,” its first line of high-performance golf balls. GFA management has sought opportunities in whatever businesses seem to have some potential for cash flow. Recently Mr Dawadawa, vice president of the GFA Company, identified another segment of the sports ball market that looked promising and that he felt was not adequately served by larger manufacturers.
As a result, the GFA Company investigated the marketing potential of brightly coloured bowling balls. GFA sent a questionnaire to consumers in three markets: Accra, Kumasi, and Koforidua. The results of the three questionnaires were much better than expected and supported the conclusion that the brightly coloured bowling balls could achieve a 10 to 15 percent share of the market. Of course, some people at GFA complained about the cost of the test marketing, which was GH¢ 250,000. In addition, feasibility test carried out by analyst to assess the viability of the project cost GH¢ 100,000
In any case, the GFA Company is now considering investing in a machine to produce bowling balls. The bowling balls would be manufactured in a building owned by the firm and located near Madina. This building, which is vacant, and the land can be sold for GH¢ 150,000 after taxes.
Working with his staff, Dawadawa is preparing an analysis of the proposed new product. He summarizes his assumptions as follows: The cost of the bowling ball machine is GH¢100,000 and it is expected to last five years. At the end of five years, the machine will be sold at a price estimated to be GH¢ 30,000. The machine is depreciated on straight line basis. The company is exempt from capital gains tax. Production by year during the five-year life of the machine is expected to be as follows: 5,000 units, 8,000 units, 12,000 units, 10,000 units, and 6,000 units. The price of bowling balls in the first year will be GH¢20. The bowling ball market is highly competitive, so Dawadawa believes that the price of bowling balls will increase at only 2 percent per year, as compared to the anticipated general inflation rate of 5 percent.
Conversely, the plastic used to produce bowling balls is rapidly becoming more expensive. Because of this, production cash outflows are expected to grow at 10 percent per year. First-year production costs will be GH¢10 per unit. Dawadawa has determined, based on GFA’s taxable income, that the appropriate incremental corporate tax rate in the bowling ball project is 34 percent.
Like any other manufacturing firm, GFA finds that it must maintain an investment in working capital. Management determines that an initial investment (at Year 0) in net working capital of GH¢10,000 is required. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final year of the project, net working capital will decline to zero as the project is wound down. In other words, the investment in working capital is to be completely recovered by the end of the project’s life. Again, the company paid GH¢20,000 per year in interest on loans contracted from Kelewele Bank Ghana Limited.
The required rate of return of the project is 15%.
Required:
Evaluate the project using NPV and advise the Management of GFA whether or not it should introduce the bowling balls      

The unadjusted trial balance for PT&M, Inc. is below. On December 31, 20xx the balance of inventory is $30,000 not counting any estimated returned inventory. The company uses GAAP for financial reporting. Additional information is on the next page. The cost principle requires that all costs reasonable and necessary to put an asset into a working condition should be capitalized. The accrual method requires that revenues be recorded when earned and expenses when incurred. The conservative convention means that accountants do not want to overstate assets, revenues or owner’s equity.

1. Prepare the adjusting journal entries. 2. Prepare the closing journal entries. Don’t forget to adjust ending inventory onto the books. 3. Use columns 7 and 8 of the worksheet to verify that the net income equals the closing journal entry to close the income summary account and increase retained earnings. Use excel.

A. The company sold goods near the end of the year with a selling price of $200,000 and terms of 5/30, N/120. This transaction was recorded as a debit to Accounts Receivable and a credit to Sales for $200,000.

B. The company made a sale on 6/30/20xx for $80,000 recorded as a debit to Cash and a credit to Sales for $80,000. $44,000 of the contract price related to goods sold FOB shipping point and the remainder related to services that will be provided over the next 24 months.

C. Inventory returns are estimated to be three percent of merchandise sales. None of the inventory has actually been returned yet. Cost of Goods Sold is twenty-five percent of the merchandise selling price.

D. The company paid $10,000 for prepaid Insurance on 10/1/20xx. The prepaid insurance is a one-year contract.

E. An aging of accounts receivables reveals that $3,500 of accounts receivables is expected to be uncollectible.

F. The land and building was purchased on 4/1/20xx for a lump sum of $200,000. If purchased separately, they would have cost 45,000 and $255,000 for the L and B. Additional costs needed to get the building ready for use were $3,000 and were charged to the Operating Expenses account. The building’s estimated useful live is 20 years and the estimated salvage value is $0. The straight-line method is used to depreciate long-term assets.

G. The company owes its employees $1,000 that has not yet been recorded. Unrecorded Interest expense on the note payable is $1,500.   

I. The replacement value of inventory at 12/31/20xx is $32,000.

K. At the end of the year, the accounting department did a bank reconciliation to verify that the accounting records matched up to the bank’s balance for cash and discovered that the bank had collected a $2,500 account receivable on the company’s behalf.

You and your team are financial consultants who have been hired by a large, publicly traded electronics firm, Brilliant Electronics (BI), a leader in its industry. The company is looking into manufacturing its new product, a machine using sophisticated state of the art technology developed by BI’s R&D team, overseas. This overseas project will last five years. They’ve asked you to evaluate this project and to make a recommendation about whether or not the company should pursue it. BI’s management team needs your recommendation and the analysis used to arrive at it by no later than December 4, 2019.

The following market data on BI’s securities are current:

Debt: 210,000 6.4 percent coupon bonds outstanding, 25 years to maturity, selling or 108 percent of par; the bonds have $1000 par value each and make semi-annual payments

Common Stock: 8,300,000 shares outstanding, selling for $68 per share; beta=1.1

Preferred Stock: 450,000 shares of 4.5% preferred stock outstanding, selling or $81 per share

Market: 7 percent expected market risk premium; 3.5 percent risk-free rate

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 $4.4 million on an after-tax basis.   In five years, the after-tax value of the land will be $4.8 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 will cost $37 million to build.

At the end of the project (the end of year 5), the plant can be scrapped for $5.1 million. The manufacturing plant will be depreciated using the straight line method.

The company will incur $6,700,000 in annual fixed costs excluding depreciation. The plan is to manufacture 15,300 machines per year and sell them at $11,450 per machine; the variable production costs are $9,500 per machine. Selling price and costs are expected to remain unchanged over the life of the project.

BI uses PK Global (PKG) as its lead underwriter. PKG charges BI spreads of 8% on new common stock issues, 6% on new preferred stock issues, and 4% on new debt issues. PKG has included all direct and indirect issuance costs (along with its profit) in setting these spreads. BI’s tax rate is 35 percent. The project requires $1,300,000 in initial net working capital investment to get operational. Assume BI raises all equity for new projects externally (that is, BI does not use retained earnings).

The weighted average flotation cost is the sum of the weight of each source of funds in the capital structure of the company times the flotation costs, so:

f_T = ($564.4/$827.65)(0.08) + ($36.45/$827.65)(0.06) + ($226.8/$827.65)(0.04) = 0.0682, or 6.82%

Thus the initial investment is increased by the amount of flotation costs:

                    (Amount raised)(1 – 0.0682) = $37,000,000   

                    Amount raised = $37,000,000/(1 – 0.0682) = $39,708,092

Your analysis should include, and your recommendation should be based on, the following:

1. Calculate the firm’s current cost of capital using the information provided.

2. Calculate the project’s cost of capital (the appropriate discount rate to use to evaluate BI’s new project) assuming the capital structure will remain the same if the project is undertaken.

This project is somewhat riskier than a typical project for BI; therefore, management has asked you to use an adjustment factor of 12% to account for this increased riskiness (that is, to add 12% to the firm’s cost of capital) to estimate the project’s required rate of return.

(NOTE: Flotation costs do not have to be considered when calculating the required rate of return for each class of security – they are addressed in this problem by adjusting the cost of the initial investment to $39,708,092 from $37,000,000).

3. Calculate the project’s annual cash flows, taking into account all the relevant cash flows.
   1. Calculate the project’s initial Time 0 cash flow, taking into account all relevant cash flows.
   2. Calculate the project’s annual operational cash flows (OCF) over the life of the project.
   3. Calculate the project’s terminal (last year of the project) cash flow.   Include all relevant cash flows.

                (Note: You can present the cash flows from Year 0 to Year 5 in a table format)

4. What is the NPV and IRR of the project?

PLEASE READ AND ANSWER

CASE #3 TATA'S TIME(STRATEGIC MANAGEMENT IN ACTION SIXTH EDITION)

It holds the number 6 spot on the list of the world's most admired companies in the steel industry. The Tata Group, based in Mumbai, India, is the largest conglomerate in that country. Its lat­est revenues are estimated at $67.4 billion, of which 61 percent is from business outside India. Tata has more than 100 operating companies in seven main business groups doing business in 80 countries: chemicals, information systems and communications, consumer products, energy, engineering, materials, and services. Its two largest businesses are Tata Steel and Tata Motors. Its Tata Tea, which owns the valued Tetley brand, also is one of the larg­est tea producers in the world. Ratan Tata, Tata Group's chairper­ son, has forged a strategy that encompasses the globe. In 1999, he issued a "clarion call to push outside India with acquisitions and exports." One of the company's executive directors recalled, "We didn't know what to expect, to be honest."

Today, Tata controls many businesses ranging from Eight O'clock Coffee Co. in the United Sates to the Taj Group of hotels, which took over management of the landmark Pierre Hotel on Central Park in New York City. Tata made its boldest global strategic push, however, in October 2006 when Tata Steel formally proposed buying British steelmaker Corus Group PLC for about $8 billion USD. Corus, which was formed by a merger of British Steel and Hoogovens, was three times the size of Tata Steel. The buyout offer soon turned into a bidding war when Tata Group discovered another company, Companhia Siderùrgica, Nacional of Brazil (CSN), was also preparing a bid and therefore upped its opening offer to $9.2 billion; CSN then raised the stakes by offering to pay $9.6 billion. A Tata Group spokesman said that the company's attempt to acquire Corus was "based on a compelling strategic rationale." Ratan Tata explained further by saying, "The revised terms deliver substantial additional value to Corus shareholders." The increased takeover bid did not impress investors as the company's share price fell 6 percent after the news was announced. Analysts and investors both "expressed concern that Tata is overpricing Corus, whose operating costs are among the highest of any steel maker—something that would affect its profitability and its plans to expand in India." However, Ratan Tata knew that the acquisition could catapult Tata Steel from its mid-50s ranking in the global steel list to the sixth-largest industry competitor. He said, "Analysts were taking a short-term, harsh view of the deal. Hopefully, the market will look back and say it was the right move." By the end of JanuaQi 2007, the U.K. Takeover Panel called an auction in order to end the bidding war and "presided over the contest that started on Tuesday, January 30." The "contest" continued for several hours until CSN pulled out. Tata Steel won its coveted prize for $12.2 billion—a 22 percent premium over what it had originally offered. That acquisition represented the latest consolidation in the global steel industry. The combined Tata-Corus can produce 25 million tons of steel a year. The deal also represented the largest foreign acquisition by an Indian company and made the diversified Tata Group the largest company in India.

In 2008, Tata made an even bigger global splash, at least in terms of recognized consumer brand names. It acquired the Land Rover and Jaguar brands from Ford for an estimated $2.3 billion.

Tata's leaders believe the group "can survive on the world stage only by being both too big to beat and too good to fail." In December 2012, when Chairman Ratan Tata steps down, Cyrus Mistry will take over as chairman of Tata Group and he "faces the daunting challenge of steering a giant, increasingly multinational conglomerate of more than 100 companies through economic headwinds at home and abroad."

DISCUSSION QUESTIONS

1. Discuss the advantages and drawbacks of going international using Tata Group's experiences.

2. What strategic challenges do you think Cyrus Mistry might face as he guides his company? Using what you know about managing strategically, how might he respond to these challenges?

3. Do some research on India's economic and political-legal environments. What opportunities and threats do you see?​​​​​​​ In light of these, do you think Ratan Tata's strategy of push­ing outside India makes sense? Explain.

​​​​​​​THANK YOU!

Michael is an environmentalist earning HK$40,000 per month. He went to Syria for environmental protection work last year. However, Syria was in war and Michael’s hotel room was bombed during his stay. He lost his left arm and right leg. After being transferred back to Hong Kong, he has to seek assistance from his wife for many daily activities, such as washing, feeding, and toileting. However, he can still work in a sheltered workshop and earns $850 per month. Suppose Michael had long-term care insurance before he went to Syria. Should the insurance company pay monthly benefit to Michael? Select one:

a. Yes, because Michael lost his left arm and right leg.

b. Yes, because Michael is suffering from dysfunction and cannot perform at least 3 daily activities.

c. Yes, because Michael’s monthly salary decreases from HK$40,000 to HK$850.

d. No, because the dysfunction was caused by the act of war.

e. No, because Michael is employed and is still able to work.

Katherine is covered by medical expense insurance. Which of the following items is likely to be excluded from her insurance policy?

Select one:

a. She gets hit by a falling potted plant, causing her to receive dental care for fixing the front tooth.

b. She is diagnosed of stage 3 lung cancer and receives radiology treatment.

c. She is seriously injured in a car accident and get admitted to intensive care unit.

d. She goes to South Korea for cosmetic surgery to boost up her self-confidence.

e. All of the above are excluded from her medical expense insurance policy.

correlation measures the degree to which two variables are related to one another.

Here are the definitions of the three possibilities:

• Positive correlations: In this type of correlation, both variables increase or decrease at the same time. A correlation coefficient close to +1.00 indicates a strong positive correlation.
• Negative correlations: This type of correlation indicates that as the amount of one variable increases, the other decreases (and vice versa). A correlation coefficient close to -1.00 indicates a strong negative correlation.
• No correlation: This indicates no relationship between the two variables. A correlation coefficient of 0 indicates no correlation.

Values range from -1 to 1. The closer to -1 or 1 the stronger the correlation. The closer to 0 the weaker it is. Correlation is a term that refers to the strength of a relationship between two variables where a strong, or high, correlation means that two or more variables have a strong relationship with each other while a weak or low correlation means that the variables are hardly related. Correlation analysis is the process of studying the strength of that relationship with available statistical data.

Example: A recent study of marriage and education found a strong negative correlation between the level of education and the divorce rate. Data from the National Survey of Family Growth show that as education level increases among women, the divorce rate for first marriages decreases.

I did a study asking community members how safe they felt in their neighborhood (on a scale of 1 to 5, with 1 = not at all safe to 5=extremely safe). I also asked the same community members how often they used their community park (on a scale of 1=never to 5=always). I ran the statistics and my correlation is .789. Is this a negative or positive correlation? And what does it show (write it out like in the example above about the direction of each variable and what that means)

M.D. is 69 years old, visits her GP for a repeat prescription of perindopril arginine 2.5 mg. She was diagnosed with heart failure and heart disease 1 year ago (LVEF < 40%) after a myocardial infarction and was started on carvedilol 12.5 mg. M.D. moved into a retirement village 1 year ago after the death of her husband. She is an active member of the walking group, but over the last 3 weeks she has had increased shortness of breath and fatigue after a steady 20 minute walk at the park. Since then she has reduced her level of physical activity and has also noticed swelling in her ankles despite her usual fluid tablets. She tells you that she has been having packaged soups instead of regular meals, because she finds it convenient, and is drinking more water than previously recommended (< 1.5 L/day was recommended after her heart failure diagnosis). Her medical history includes dyslipidemia, osteoarthritis, stable ischemic heart disease, and hypertension. Her current medicines (all once daily) are carvedilol 12.5 mg, aspirin 81 mg, atorvastatin 20 mg, celecoxib 200 mg, controlled-release isosorbide mononitrate 60 mg and furosemide 20 mg. M.D. currently weighs 70 kg (up by 4 kg from last visit 6 months ago) and her blood pressure is 140/82 mmHg. Serum biochemistry (urea, creatinine and electrolytes) was normal when tested 6 weeks ago. LDL was 100 and HDL was 52. Her estimated creatinine clearance was 60 mL/min.

Discuss how the chronic care model can be used to assist M.D

M.D. is 69 years old, visits her GP for a repeat prescription of perindopril arginine 2.5 mg. She was diagnosed with heart failure and heart disease 1 year ago (LVEF < 40%) after a myocardial infarction and was started on carvedilol 12.5 mg. M.D. moved into a retirement village 1 year ago after the death of her husband. She is an active member of the walking group, but over the last 3 weeks she has had increased shortness of breath and fatigue after a steady 20 minute walk at the park. Since then she has reduced her level of physical activity and has also noticed swelling in her ankles despite her usual fluid tablets. She tells you that she has been having packaged soups instead of regular meals, because she finds it convenient, and is drinking more water than previously recommended (< 1.5 L/day was recommended after her heart failure diagnosis). Her medical history includes dyslipidemia, osteoarthritis, stable ischemic heart disease, and hypertension. Her current medicines (all once daily) are carvedilol 12.5 mg, aspirin 81 mg, atorvastatin 20 mg, celecoxib 200 mg, controlled-release isosorbide mononitrate 60 mg and furosemide 20 mg. M.D. currently weighs 70 kg (up by 4 kg from last visit 6 months ago) and her blood pressure is 140/82 mmHg. Serum biochemistry (urea, creatinine and electrolytes) was normal when tested 6 weeks ago. LDL was 100 and HDL was 52. Her estimated creatinine clearance was 60 mL/min.

Discuss two (2) self-care management recommendations for M.D.

M.D. is 69 years old, visits her GP for a repeat prescription of perindopril arginine 2.5 mg. She was diagnosed with heart failure and heart disease 1 year ago (LVEF < 40%) after a myocardial infarction and was started on carvedilol 12.5 mg. M.D. moved into a retirement village 1 year ago after the death of her husband. She is an active member of the walking group, but over the last 3 weeks she has had increased shortness of breath and fatigue after a steady 20 minute walk at the park. Since then she has reduced her level of physical activity and has also noticed swelling in her ankles despite her usual fluid tablets. She tells you that she has been having packaged soups instead of regular meals, because she finds it convenient, and is drinking more water than previously recommended (< 1.5 L/day was recommended after her heart failure diagnosis). Her medical history includes dyslipidemia, osteoarthritis, stable ischemic heart disease, and hypertension. Her current medicines (all once daily) are carvedilol 12.5 mg, aspirin 81 mg, atorvastatin 20 mg, celecoxib 200 mg, controlled-release isosorbide mononitrate 60 mg and furosemide 20 mg. M.D. currently weighs 70 kg (up by 4 kg from last visit 6 months ago) and her blood pressure is 140/82 mmHg. Serum biochemistry (urea, creatinine and electrolytes) was normal when tested 6 weeks ago. LDL was 100 and HDL was 52. Her estimated creatinine clearance was 60 mL/min.

List two (2) factors that may have exacerbated M.D.’s heart failure and what suggestions you would provide for M.D.