During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice-president. Your first task is to estimate Jana's cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:

Information:

1. The firm's tax rate is 40 percent.

2. The current price of Harry Davis’ 12 percent coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana's does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.

3. The current price of the firm's 10 percent, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% per share on a new issue.

4. Jana’s common stock is currently selling at $50 per share. Its last dividend (d0) was $3.12, and dividends are expected to grow at a constant rate of 5.8 percent in the foreseeable future. Jana’s beta is 1.2; the yield on t-bonds is 5.6 percent; and the market risk premium is estimated to be 6 percent. For the bond-yield-plus-risk-premium approach, the firm uses a 3.2 percentage point risk premium. 5. Harry Davis’ target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent common equity.

5. Jana's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity.

Problems:

A. What is the firms cost of preferred stock?

B. Jana's preferred stock is riskier to investors than its debt, yet the preferred stock's yield to investors is lower than the yield to maturity on the debt. Does this suggest that you have made a mistake? (hint think about taxes)

C. What is the estimated cost of equity using the discounted cash flow approach

The following table gives the price (in dollars), weight (in pounds), amps, and maximum cutting depth (in inches) for a collection of 19 circular saws.

1.Make a prediction about the impact of each independent variable on the dependent variable.

2.Use graphical summaries to examine the relationship between each pair of variables. What do you see? Are there any unusual observations or outliers? Does the data support your predictions?

3.Write the regression equation.

4. Estimate the regression model. Interpret the estimated coefficients.

5. Predict the price of a circular saw that weighs 10 pounds, uses 12 amps of current, and has a maximum cutting depth of 2.5 inches.

6. Describe the fit of the model.

7. Find the residuals for the regression.

8. Test whether or not the coefficients are jointly significant. Be sure to set up the hypothesis, the decision rule, and the conclusion.

9.Test whether or not the price is significantly impacted by amps. Be sure to set up the hypothesis, the decision rule, and the conclusion.

Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing. The company carries no inventories. The master budget calls for the company to manufacture and sell 116,000 liters at a budgeted price of $195 per liter this year. The standard direct cost sheet for one liter of the preservative follows. Direct materials (2 pounds @ $12) $ 24 Direct labor (0.5 hours @ $40) 20 Variable overhead is applied based on direct labor hours. The variable overhead rate is $100 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $50 per unit. All non-manufacturing costs are fixed and are budgeted at $2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $606,000 unfavorable. The following is the actual income statement (in thousands of dollars) for the year. Sales revenue $ 21,718 Less variable costs Direct materials 2,368 Direct labor 2,210 Variable overhead 5,230 Total variable costs $ 9,808 Contribution margin $ 11,910 Less fixed costs Fixed manufacturing overhead 1,130 Non-manufacturing costs 1,310 Total fixed costs $ 2,440 Operating profit $ 9,470 During the year, the company purchased 192,000 pounds of material and employed 48,400 hours of direct labor. Required: a. Compute the direct material price and efficiency variances. b. Compute the direct labor price and efficiency variances. c. Compute the variable overhead price and efficiency variances. (For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

The Saunders Investment Bank has the following financing outstanding. Debt: 30,000 bonds with a coupon rate of 6 percent and a current price quote of 112.0; the bonds have 20 years to maturity. 200,000 zero coupon bonds with a price quote of 21.0 and 30 years until maturity. Preferred stock: 120,000 shares of 4 percent preferred stock with a current price of $86, and a par value of $100. Common stock: 2,300,000 shares of common stock; the current price is $72, and the beta of the stock is 1.50. Market: The corporate tax rate is 25 percent, the market risk premium is 8 percent, and the risk-free rate is 5 percent. What is Market Value of the following capital components? (Do not round intermediate calculations and enter your answer rounded to the nearest whole dollar amount, e.g., 1,234.) Market Value of Equity $ Market Value of Preferred Stock $ Market Value of 6% Bond $ Market Value of Zero Coupon Bond $ What is Total Market Value of the Company? (Do not round intermediate calculations and enter your answer rounded to the nearest whole dollar amount, e.g., 1,234.) Total Market Value of the Company $ What is Cost of of the following capital components? (Do not round intermediate calculations and enter your answer as a percent amount rounded to 2 decimal places, e.g., 12.34) Cost of Equity % Cost of Preferred Stock % After-tax Cost of 6% Bond % After-tax Cost of Zero Coupon Bond % What is the firm's Weighted Average Cost of Capital (WACC)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 12.34.) Weighted Average Cost of Capital (WACC) %

Case 3:

We find the data for a municipal bond issued by the Illinois state government.

The bond’s “last trade date” (i.e., settlement date) is June 05, 2019.

The bond’s “maturity date” is March 14, 2054.

The bond’s “coupon rate” is fixed as “5.000%” per year.

The bond’s coupon “payment frequency” is “semi-annual”.

The bond’s “last trade yield” (i.e., yield-to-maturity) is quoted as “4.280%” per year.    

(a) Based on the aforementioned settlement date, maturity date, coupon rate, coupon payment frequency and yield to maturity, what shall be the corresponding bond PRICE (relative to redemption par of 100)?

(b) Assumes that the Fed suddenly tightens its monetary policy now, causing interest rates to rise across financial markets. The aforementioned IL municipal bond’s yield-to-maturity also rises from 4.280% to “5.280%” per year. Will the bond PRICE go up or go down then? By how much?

(c) Assumes that the Fed suddenly loosens its monetary policy now, causing interest rates to rise across financial markets. The aforementioned IL municipal bond’s yield-to-maturity also drops from 4.280% to “3.280%” per year. Will the bond PRICE go up or go down then? By how much?

(d) Based on your answers to (b) and (c), is there a positive, negative or zero association between bond YIELD and its PRICE? (Hint: Positive association means “moving in the same direction”, negative association means “moving in the opposite directions”, while zero association means “one moves but the other does not get affected”.)

XYZ Corporation has total earnings of $500 Million which are
projected to remain constant. XYZ also has total shares outstanding of 300 million. The corporation
intends to distribute dividends to its shareholders according to the following schedule:
Period 1: Give a dividend payout rate of 40%
Period 2: Give a dividend payout rate of 100%.

Period 3 until forever: Give a dividend payout rate of 70%. Dividends are also projected to grow at a
rate of 4% every year forever.

(a) 5 Points. Find the price of XYZ corporation’s stock in period 2 (call it P2). Given P2 write
down the formula that would determine the (per share) price of XYZ’s stock today (P0). Assume
equity cost of capital is 8%. (NOTE: You have to plug in all relevant information into the formula
for full credit).

(b) 5 Points. What is the expected total return from this stock? Assume, you will sell the stock at
the end of period 2. (NOTE: To get full credit you need to write down the expression that would
calculate the total return)

(c) 5 Points. Suppose that in Period 3, XYZ also intends to start buying back some of its shares
outstanding and it intends to spend 20% of its earnings to do so. According to the total payout
model, what would be the stock price of XYZ Corporation in period 2?

(d) 5 Points. As of April 6th, 2020 one share of Microsoft’s stock traded at $165. On the other
hand, one share of stock by Berkshire Hathaway traded at $277,000. Provide one reasons that
might explain the large difference in the stock price between these corporations.

Case 3: We find the data for a municipal bond issued by the Illinois state government. The bond’s “last trade date” (i.e., settlement date) is June 05, 2019. The bond’s “maturity date” is March 14, 2054. The bond’s “coupon rate” is fixed as “5.000%” per year. The bond’s coupon “payment frequency” is “semi-annual”. The bond’s “last trade yield” (i.e., yield-to-maturity) is quoted as “4.280%” per year.

(a) Based on the aforementioned settlement date, maturity date, coupon rate, coupon payment frequency and yield to maturity, what shall be the corresponding bond PRICE (relative to redemption par of 100)?

(b) Assumes that the Fed suddenly tightens its monetary policy now, causing interest rates to rise across financial markets. The aforementioned IL municipal bond’s yield-to-maturity also rises from 4.280% to “5.280%” per year. Will the bond PRICE go up or go down then? By how much?

(c) Assumes that the Fed suddenly loosens its monetary policy now, causing interest rates to rise across financial markets. The aforementioned IL municipal bond’s yield-to-maturity also drops from 4.280% to “3.280%” per year. Will the bond PRICE go up or go down then? By how much?

(d) Based on your answers to (b) and (c), is there a positive, negative or zero association between bond YIELD and its PRICE? (Hint: Positive association means “moving in the same direction”, negative association means “moving in the opposite directions”, while zero association means “one moves but the other does not get affected”.)

Need Excel formulas for all

*Include all calculations and no excel please*

A buyer for National Sports must place orders with Saucony prior to the time the shows will be sold as they are manufactured overseas and shipping takes several months.  The buyer must decide on November 1 how many pairs of the latest model Saucony’s to order for sale during the coming summer season. Saucony’s ordering policy requires retailers to purchase shoes in lots of 100 pair.  Saucony charges National Sports $45 per pair.  National retails them at $70 per pair.  Any pairs remaining unsold at the end of the summer season will be sold at a 50% closeout sale next fall ($35 per pair).  Market research by Nielsen suggests the following probabilities of demand for the new shoes:

1. Draw and solve a decision tree for this problem. How many shoes should National order?  
2. How much profit will they actually earn?
3. Compute the value of perfect information regarding demand for the new style.
4. Ipsos is offering additional market research to help National refine the probability of demand.  The price of the market research is $5000.  Should you: (a) snatch it up because the price is below the value of perfect information, (b) draw and solve a value of sample information tree to determine how much the information is really worth in light of its accuracy since the price is below the value of perfect information, or (c) laugh in their face because the price is more than the value of perfect information and the offer is therefore overpriced.

Case 3: We find the data for a municipal bond issued by the Illinois state government. The bond’s “last trade date” (i.e., settlement date) is June 05, 2019. The bond’s “maturity date” is March 14, 2054. The bond’s “coupon rate” is fixed as “5.000%” per year. The bond’s coupon “payment frequency” is “semi-annual”. The bond’s “last trade yield” (i.e., yield-to-maturity) is quoted as “4.280%” per year.

(a) Based on the aforementioned settlement date, maturity date, coupon rate, coupon payment frequency and yield to maturity, what shall be the corresponding bond PRICE (relative to redemption par of 100)?

(b) Assumes that the Fed suddenly tightens its monetary policy now, causing interest rates to rise across financial markets. The aforementioned IL municipal bond’s yield-to-maturity also rises from 4.280% to “5.280%” per year. Will the bond PRICE go up or go down then? By how much?

(c) Assumes that the Fed suddenly loosens its monetary policy now, causing interest rates to rise across financial markets. The aforementioned IL municipal bond’s yield-to-maturity also drops from 4.280% to “3.280%” per year. Will the bond PRICE go up or go down then? By how much?

(d) Based on your answers to (b) and (c), is there a positive, negative or zero association between bond YIELD and its PRICE? (Hint: Positive association means “moving in the same direction”, negative association means “moving in the opposite directions”, while zero association means “one moves but the other does not get affected”.)

Need Excel formulas for all

Supply Chain Management

Supplier Positioning

WWA purchases a variety of products and services to manufacture its product. The table below provides insight into these purchases on an annual basis:

Linear Averaging

The supply chain team has identified 4 suppliers in Low Cost Regions and evaluated them on Quality, Price, OTD, and transportation costs. The price evaluation uses an inverted scale, the lower the score the higher the price. Use Excel perform linear averaging and select the best supplier. See for the details of each supplier and their evaluation.