Suppose you have been hired as a financial consultant to DE Ltd, a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). DEI’s tax rate is 34 per cent. You have the following market data on DEI’s securities: Debt: 46,600 6.9 per cent coupon bonds outstanding, 21 years to maturity, selling for 93.4 per cent of par; the bonds have a $1000 par value each and make semi-annual payments. Common stock: 766,000 shares outstanding, selling for $95.60 per share; the beta is 1.13. Preferred stock: 36,600 shares paying a fixed dividend of $6.25 per preference share, selling for $93.60 per share. Market: 7.05 per cent expected market risk premium; 5.25 per cent risk-free rate. Requirement 1- Calculate the firm’s before tax and after-tax cost of debt, cost of preferred shares and the cost of ordinary shares. Requirement 2- Calculate the firm’s weighted average cost of capital (use the market values when calculating the weights). Requirement 3- The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. The new project would cost $1.7 million and is expected to provide $200,000 of cashflow at the end of each year forever. The project is, however, somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +3 per cent to account for this increased riskiness. a) What is the appropriate discount rate to use when evaluating DEI’s project? b. Use this discount rate (that you calculated in part a) to estimate the net present value of the project. Should the firm accept the project? c. Discuss whether your decision would have been different if you have used the company’s overall WACC (unadjusted for project’s higher risk) when discounting the projects cashflows in your NPV calculation.

The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. The tools are used in the unique construction of homes, warehouses, and multiunit dwellings. The prices range from $1,000 to $5,000 per unit.

During the audit, the audit team has determined the risk assessment of the client. Consequently, the audit has to respond to the assessed risks of material misstatement at the financial statement and assertion levels. The YOUCPA audit team has asked you, the auditor, to prepare a list of actions that you will take to assess the audit risk.

The following information is available in the year just finished:

• The BakFirn Corporation end-of-year is 12/31/20XX.
• Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.
• The firm is in the construction machine industry, making specialty tools.
• Account receivable days sales outstanding (DSO) has been averaging 90–120 days. The year before, it was 80–90 days.
• Inventory turns have decreased from 3 to 2 per year.
• Account receivable and inventory make up 80% of total assets.
• Internal auditing has been reduced by one person to reduce costs.
• An initial test of controls in cash receipt indicated a lack of following procedures.
• The construction industry is in the third year of a downturn. It is forecasted to last two more years.
• The audit team has defined materiality to be focused on account receivable and inventory with $3,000 being the initial threshold. Net income for last year was $1,000,000.
• Inventory at the end of the year was $2,500,000.
• Account receivable at the end of the year was $2,740,000, or 100 DSO.
• The previous auditors did not disclose any fraud or any management issues at the meeting with BakFirn and YOUCPA. The reason for the auditor change was explained as a costs reduction program

Questions: Audit Assessment Steps:

1. What is the initial audit risk? High, medium or low?
2. What factors made you decide on this level?

The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. The tools are used in the unique construction of homes, warehouses, and multiunit dwellings. The prices range from $1,000 to $5,000 per unit.

During the audit, the audit team has determined the risk assessment of the client. Consequently, the audit has to respond to the assessed risks of material misstatement at the financial statement and assertion levels. The YOUCPA audit team has asked you, the auditor, to prepare a list of actions that you will take to assess the audit risk.

The following information is available in the year just finished:

• The BakFirn Corporation end-of-year is 12/31/20XX.
• Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.
• The firm is in the construction machine industry, making specialty tools.
• Account receivable days sales outstanding (DSO) has been averaging 90–120 days. The year before, it was 80–90 days.
• Inventory turns have decreased from 3 to 2 per year.
• Account receivable and inventory make up 80% of total assets.
• Internal auditing has been reduced by one person to reduce costs.
• An initial test of controls in cash receipt indicated a lack of following procedures.
• The construction industry is in the third year of a downturn. It is forecasted to last two more years.
• The audit team has defined materiality to be focused on account receivable and inventory with $3,000 being the initial threshold. Net income for last year was $1,000,000.
• Inventory at the end of the year was $2,500,000.
• Account receivable at the end of the year was $2,740,000, or 100 DSO.
• The previous auditors did not disclose any fraud or any management issues at the meeting with BakFirn and YOUCPA. The reason for the auditor change was explained as a costs reduction program.

Audit Plan Evidence

1. Would you plan to put reliance on prior-year evidence? Why, or why not?
2. Would your evidence come from observation, analytical procedures, or other means? Explain your reasoning.
3. Would the evidence prove or disprove an assertion on the reliance of a specific balance sheet account or financial statement account? Explain your reasoning

At December 31, 2019, Moon Co. owned the following investments in capital stock of publicly traded companies as marketable securities: Cost Current Market Value Value Cola Co., Inc. (6000 shares: cost, $4 per share; market value, $5) $ 24 000 $ 30 000 Juice, Inc. (4000 shares: cost, $5 per share; market value, $3) $ 20,000 $ 12,000 Total $44,000 $42,000 In 2020, Moon engaged in the following two transactions: June 12 Sold 2,000 shares of its investment in Cola Co., Inc., at a price of $5 per share, less a brokerage commission of $200. Sept. 3 Sold 1,000 shares of its investment in Juice, Inc., at a price of $4 per share, less a brokerage commission of $200. The fair value adjustment at December 31, 2019 will include?

Beaver Co. is a publicly-traded corporation that produces different types of air fryers. My name is Alan Smith and I have worked for this company for the last ten years in the controller’s office. I was both an accounting and finance major at university. The company currently produces 300 products and does not anticipate any new products coming out over the next three years. I have previously mentioned to my superiors that it is not appropriate for our firm to use a traditional costing system (where overhead costs are allocated across products at a rate of $30 per direct labor hour) when different products require different amounts of indirect overhead resources. For example, under the traditional system, all costs associated with the testing of products for quality assurance purposes are part of overhead costs and therefore allocated across products based on direct labor hours. Yet, some of our products require as much as 5 hours of testing whereas some products require less than 1 minute of testing with no connection to direct labor hours. Given that traditional costing systems may result in significant cost distortions when determining product costs and given that the firm now has revenues of over $100 million a year, Beaver has decided to adopt activity-based costing over the next year or two. Further, Classic is sold in large quantities whereas Artisan is sold in small quantities.

Current information from our existing system on a per unit basis is shown in Exhibit 1.

Exhibit 1

My staff has identified for Deloitte five activity cost pools. Information on those cost pools and the related activity measures are provided in Exhibit 2.

Exhibit 2

Although fixed costs are lumped in with variable costs across the five different cost pools, I am aware that machining related costs consist almost exclusively of depreciation costs. Hence, with respect to all questions asked in this case, machining costs will be treated as entirely fixed with respect to machine hours. Each machine is used in the production of multiple product lines. The resale value of machines is only affected by the passage of time and not by how much they are used in a given year. In all questions asked in this case, the firm will assume that costs associated with equipment setups, purchase orders, testing, and packaging & shipping are variable with respect to their respective activity measures. Currently, we believe our assumptions on cost behavior patterns are quite reasonable. All products are produced in batches, where the size of a batch differs across products. For example, if we produce 80 units of a product in batch sizes of 40, then the product will be produced in two batches. An equipment setup must be performed before producing each batch of a product. Hence, in the example above, two equipment setups would be performed. Units of product are packaged in containers and sent to distributors.Production volumes are set equal to sales volumes since the company only produces products that they have orders for. Consequently, the firm never has a beginning or ending work in process inventory, and it does not have a beginning or ending finished goods inventory.

Further information on our two products is provided in Exhibit 3

Exhibit 3

REQUIRED:

1. (20 Points) Calculate product margin for Classic and Artisan using the traditional costing system where overhead is applied at a rate of $30 per direct labor hour. The amount of product margin should be on a total basis and then show the average product margin unit using the following template for guidance:

                                                    Classic                                 Artisan

Sales                                                    $$$                                          $$$     

Direct materials                          $$$                                           $$$            

Direct labor                                 $$$                                           $$$            

Manufacturing overhead             $$$                                           $$$            

Cost of goods sold                              $$$                                          $$$                 

Product margin                                   $$$                                          $$$                 

Average product margin per unit       $$$                                          $$$

Harrison​ Holdings, Inc.​ (HHI) is publicly​ traded, with a current share price of $31 per share. HHI has 28 million shares​ outstanding, as well as $65 million in debt. The founder of​ HHI, Harry Harrison, made his fortune in the fast food business. He sold off part of his fast food​ empire, and purchased a professional hockey team.​ HHI's only assets are the hockey​ team, together with 50% of the outstanding shares of​ Harry's Hotdogs restaurant chain.​ Harry's Hotdogs​ (HDG) has a market capitalization of $897 million, and an enterprise value of $1.03 billion. After a little research, you find that the average asset beta of other fast food restaurant chains is 0.76. You also find that the debt of HHI and HDG is highly​ rated, and so you decide to estimate the beta of both​ firms' debt as zero.​ Finally, you do a regression analysis on​ HHI's historical stock returns in comparison to the​ S&P 500, and estimate an equity beta of 1.35. Given this​ information, find the following:

1. Find HHI's asset beta

2. Beta of HDG

3. Estimate the beta of​ HHI's investment in the hockey team.

Round all answers to four decimal points.

Complete a thorough financial analysis of Goldman Sachs, a publicly traded corporation. The project deliverables should be a structured Word document and accompanying Excel spreadsheets. Requirements must include the following analysis: a. One page description of the Goldman Sachs: it’s products, markets, subsidiaries, risks b. Overall trend assessment of the company’s balance sheet and income statement for the last three to five years. c. Selected ratio trend analysis. The following ratio categories must be included, with three ratios (minimum) from each category: i. Short-term solvency ratios, also known as liquidity ratios ii. Long-term solvency ratios, also known as financial leverage ratios iii. Asset management ratios, also known as turnover ratios iv. Profitability ratios v. Market value ratios. A three-year ratio trend analysis is the minimum expectation. d. Analysis of the company’s stock price, PE (Price-Earnings Ratio) and EPS (Earnings per Share Ratio) trends for the last three to five years. Analysis must include comparison to key market competitors. e. Evaluation of the firm’s current Beta (trend not required) with comparison to key market competitors. f. Assessment of the firm’s capital structure (Debt to Equity Ratio) including any significant changes in the firm’s capital structure over the last three to five years. g. Calculate the WACC (weighted average cost of capital) using both the Security Market Line Approach and the Dividend Growth Model Approach. Compare the WACC for each approach, discussing the advantages and disadvantages of each. h. Assessment of the firm’s statement of cash flows for the last three to five years, including an assessment of the firm’s free cash flow over the last three to five years. i. Closing summary of the firm’s financial health in relation to the overall economy and within its industry, using analyst recommendations as a guide.

There have been several problems associated with management compensation at publicly traded companies being uncorrelated with management performance. Which of the following proposals on compensation offers the most promise in dealing with this problem?

a. Put a cap on management compensation at all companies; annual compensation for a manager cannot exceed $ 5 million.

b. Require that all top management compensation contracts be put to shareholder vote (rather than be approved by the board of directors)

c. Ban all “equity” based compensation (options, restricted stock etc.)

d. Require that at least 50% of compensation be in the form of equity options. e. Require that compensation be explicitly tied to current profits

please explain why thank u

You are the CFO of a sizable publicly-traded, multinational firm. Over the last 20 months, you've been working tirelessly to put together a deal for the construction of a very large manufacturing plant in Tokyo, Janapan. It's been quite a journey. You've spent weeks on end in Japan working with government representatives, architects, engineers and local contractors to get the project ready to go.  

Back here in ohio, you've also worked out the details on a $140,000,000 syndicated debt facility led by JP Morgan and they're ready to go with a construction loan. That, and another $70,000,000 of the Company's cash reserves will fund the project's total cost.

This morning, as usual, you're at your desk when the CEO walks down the hall by your office with what looks to you to be a distracted look on her face. She stops, looks at you and says: "This escalating tension between us and China over the Covid-19 pandemic. . .Should that impact our strategy to move forward on the project? Let's plan on having lunch in my office so you can tell me what you think."

Well, there goes the morning! What do you tell the CEO at lunch time?

Defense Electronics, Inc. (DEI), a large publicly traded firm is the market share leader in radar detection systems (RDSs), has asked you to compute the cost of debt for the firm. The cost of debt is equivalent to the required return to debtholders, or the firm’s YTM. Using the information provided below, compute the firm’s cost of debt and the total market value of the firm’s debt.

Debt:    230,000 7.2 percent coupon bonds outstanding, 25 years to maturity, selling for 108 percent of par; the bonds have a $1,000 par value each and make semiannual coupon payments.