1. “Hassen Constructions SAOG”, the company is situated in Al Khuwair. The organization is specialised in the manufacturing of building materials that are used in construction sites.

Currently the company’s capital structure (total capital) is ungeared. However, the owners of Hassen constructions is planning to change their capital structure into a leverage (geared) capital structure as they believe having a debt component in its capital structure will be beneficial to the organization.

The company total capital is RO 300 million which is an equity-based capital structure. The company has two share buyback options available to move into a leverage(geared) capital structure.

Option 1

The company has an option in converting 30% of its equity capital to debt capital at an interest rate of 7%.

Option 2

The company has an option of converting 50% of its equity capital to debt capital at an interest rate of 7.5%

To evaluate the impact on the alternative policies the financial accountant of the company has presented the following data to evaluate the impact on ROE in the current capital structure and the above two given options.

The financial accountant believes that based on the sales forecast the sales could be either weak, average or strong. The probability for the market to be weak is 0.3, average 0.5 and strong 0.2.

The profits before interest and tax (PBIT) , if the market is considered to be weak is RO 30 million, if the market is average the PBIT is 50% greater than the market is weak and if the market is considered to be strong it is 75% greater than if the market is average.

The current applicable tax rate is 25%

Required:

1. Calculate expected annual return on equity (ROE) under each option (the current, option I and option II)
2. Calculate expected average annual return on equity (ROE) considering all options together.
3. Evaluate the benefits and drawbacks of Hassen constructions in to changing their capital structure from and equity based to leverage. And, advise which of the three options (current or option I or option II) that Hassan Construction SAOG should go for under a normal situation? And substantiate your advice with suitable reasons.

Evaluate the factors that Hassen construction should consider when evaluating its capital structure policy.

Python programming Summary

Store the times into arrays called Chevy[ ] and Ford[ ]. Then list the winner of each pair, giving the number of seconds the winner won by. At the end declare which team won based on which team had the most wins.

Lab Steps

There are eight cars in each team called Chevy and Ford. One car from each team races its opponent on the drag strip. Read in the racing times for the eight Chevy cars and then read in the times for the eight Ford cars.

Sample Match:

Specifications:

• Accept the racing times for each of the Chevy cars into the array Chevy[ ].
• Accept the racing times for each of the Ford cars into the array Ford[ ].
• Then declare the wining car for each race, giving the winning time in seconds.
• If the times are identical, then declare the race was a tie.
• Finally, declare which team won the match, assuming a tie is possible.

Suppose you currently have a portfolio of three stocks, A, B, and C. You own 500 shares of A, 300 of B, and 1000 of C. The current share prices are $42.76, $81.33, and $58.22, respectively. You plan to hold this portfolio for at least a year. During the coming year, economists have predicted that the national economy will be awful, stable, or great with probabilities 0.2, 0.5, and 0.3, respectively. Given the state of the economy, the returns (one-year percentage changes) of the three stocks are independent and normally distributed. However, the means and standard deviations of these returns depend on the state of the economy, as indicated in the table below.

a. Use @RISK to simulate the value of the portfolio and the portfolio return in the next year.

Round your portfolio value answer to a whole number, and, if necessary, round your portfolio return answer to three decimal digits.

How likely is it that you will have a negative return? How likely is it that you will have a return of at least 25%? If necessary, round your answers to three decimal digits.

b. Suppose you had a crystal ball where you could predict the state of the economy with certainty. The stock returns would still be uncertain, but you would know whether your means and standard deviations come from row 6, 7, or 8 of the file P16_20.xlsx. If you learn, with certainty, that the economy is going to be great in the next year, run the appropriate simulation to answer the same questions as in part a.

Repeat this if you learn that the economy is going to be awful.

Risk analysis is one way to monitor security in an organization. Risk analysis can be a time- consuming process; it involves a number
of steps, some of which require “educated guessing.” Nevertheless, the process alone raises awareness of security issues even if no immediate actions are taken as a result. The steps are:

i. Identify assets (infrastructure, people, hardware, software, reputation, etc.).

For the rest of this list, we’ll concentrate on a single asset.

ii. Determine vulnerability (what event or events might happen to the asset. For example, the building could catch fire, the website could be hacked, etc.).

For the rest of this list, we’ll concentrate on a single asset vulnerable to a single event.

ii. Estimate the probability per year of this event (based on past data, expert estimates, etc.). Take current security measures into account.

iv. Estimate the expected cost if this event occurs (cost to repair or replace, cost of lost business, etc.).

v. Compute risk exposure 5 cost estimate 3 probability estimate.

vi. Identify any additional security measure X that would help protect against this event, determine what it would cost, and do a calculation of the risk exposure with the additional security measure X in place.

vii. Do a cost-benefit analysis:
(Risk exposure without X – Risk exposure with X) − Cost of X

You have a small web-based business that uses a single server to manage your webpage and your customer information. Over the past four years, your website has been hacked and taken down twice. You estimate that the cost of this event is $600 to clean the server and reload the webpage and $12,000 in lost business while the server is down.

1. You could purchase a backup server for a cost of $3,000, which you estimate would reduce the probability per year of losing your website to 0.2. Would this be a cost- effective security measure?

2. What if you reevaluate the probability per year with the backup server to be 0.3. Does this change your answer?

Lee Company has the following information for the pay period of December 15–31:

Assuming no employees are subject to ceilings for taxes on their earnings, Salaries Payable would be recorded for

a.$14,120.01

b.$18,387.00

c.$13,880.97

d.$12,740.98

A firm is expected to have free cash flow of $881 million next year. The firm has $1 billion of outstanding debt and no preferred stock. The WACC is 7% and FCF is expected to grow at 1% indefinitely. If the firm has 91 million shares outstanding, what is the expected value of the firm's stock price?

If a portfolio holds three stocks in equal amounts, and the betas of the three stocks are 0.8, 1.4, and 1.4, what is the beta of the portfolio?

Supply is elastic whenever the value of the elasticity of supply is positive and greater than 1.

a) True

b) False

The price elasticity of supply is calculated as the change in supply divided by the change in price.

a) True

b) False

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

a) True

b) False

The demand for heating oil in the short run is more elastic than the long run demand for heating oil.

a) True

b) False

1. A physician wishes to administer 1,700,000 units of penicillin G potassium every 4 hours. If 1 unit of penicillin G potassium (C₁₆H₁₇KN₂O₄S: m.w. 372) equals 0.8 mcg, how many milliequivalents of K⁺ will the patient receive in a 24-hour period?

2. How many millimoles of calcium gluconate (Ca(C₆H₁₁O₇)₂: m.w. 430) are represented in 10 mL of a 20% w/v calcium gluconate solution?