Business and Management
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Over lunch, you and Mary meet to discuss next steps with the expansion project.
$20.00Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.
Over lunch, you and Mary meet to discuss next steps with the expansion project.
“Do we have everything we need on sales and costs?” you ask. ”It must be time to compute the net present value (NPV) and internal rate of return (IRR) of the Apix expansion project.”
“We have the data from James and Luke regarding projected sales and costs, respectively, for the food packaging project,” says Mary. “It is feasible to project that we will receive a tax break from this implementation. I have information from our audit firm that indicates that future depreciation methods for taxes will be straight-line; however, the corporate rates will be reduced to 35% as we assumed in our weighted average cost of capital (WACC) calculation.”
“That sounds good,” you say.
“Right,” says Mary. “You can use the WACC of 1% listed in the Excel file posted for the computation of the NPV and comparison for IRR.”
“I’ve got the information I need from Luke and James,” you say. “Does this look right to you? Here’s what they gave me,” you say, as you hand a sheet of paper to Mary.“Let’s look at this now while we’re together,” she says.
The information you hand to Mary shows the following:
- Initial investment outlay of $30 million, consisting of $25 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
- Project and equipment life: 5 years
- Sales: $25 million per year for five years
- Assume gross margin of 60% (exclusive of depreciation)
- Depreciation: Straight-line for tax purposes
- Selling, general, and administrative expenses: 10% of sales
- Tax rate: 35%
You continue your conversation.
“It looks good,” says Mary. “Use this information from Luke and James to compute the cash flows for the project.”
“No problem,” you say.
“Then, compute NPV and IRR of the project using the Excel spreadsheet I sent earlier today,” says Mary. “Use the IRR financial function for the computation of IRR.”
“Okay,” you say. “I’ll submit my Excel file showing the computation of cash flows, NPV, and IRR by the end of week so you can look at it over the weekend.”
“Thanks,” says Mary.
Complete the above worksheet for this assignment.
Capital Budgeting Analysis: Gordon Hall
$7.00Capital Budgeting Analysis
You are required to work the following problem, using a discounted cash flow (NPV) analysis. You should model your answer on the text approach in Chapter 8.
“Gordon Hall is considering replacing an old machine with a new one from Li Ho. The old machine (bought 5 years ago from Tom Lee) cost $340,000, while the new one will cost $280,000, fully financed by a 5 year 9% per annum interest only loan.
“The new machine will be depreciated prime cost to $50,000 over its 5 year life. Gordon estimates that it will be worth $40,000 (salvage value) after 5 years. The old machine is being depreciated at prime cost to zero over its original expected life of 10 years. However, George can sell the old machine today for $86,000.
“The new machine will save Gordon $70,000 a year in cooling costs. Other costs are that, one year ago, a feasibility study on the new machine conducted for Gordon by an external firm of consultants, cost Gordon $20,000. With the new machine, Gordon will also lose $10,000 of sales of another product to Tom Lee.
“With the new machine, a one-off amount of cleaning supplies (current assets) at a cost of $9,000 will be required, and Henry estimates that accounts receivable (also current assets) will increase by $14,000. Both of these increases in working capital will be recouped at the end of the new machine’s life in five years time.
“Gordon’s cost of capital is 9%. The tax rate is 30%. Tax is paid in the year in which earnings are received.”
REQUIRED.
(a) Calculate the net present value of the proposed change, that is, the net benefit or net loss in present value terms of the proposed changeover.
(b) Should Henry purchase the new machine? State clearly why.”
THE GOLDMAN SACHS GROUP, INC
$7.00Finance Investment Banking Industry Analysis
The purpose of this assignment is to analyze an investment banking company.
Goldman Sachs has been a benchmark for the investment banking industry. How has the company performed since the recession ended in 2010? Analyze the company’s financial results in 2011-14.
The analysis is to include a review of recent income statements and balance sheets. Ratio analysis should also be included. Company financial statements, company ratios, and industry ratios can be found at CSIMarket.com.
Annual statements can be found at:
http://www.sec.gov/cgi-bin/browse-edgar?CIK=gs&Find=Search&owner=exclude&action=getcompany
Search for 10-K. These are the annual statements filed by public companies.
Use the Fundamentals and Financials sections in CSIMarket along with other sections as needed. Information on sources of the revenues and comparisons to competitors is also available.
The assignment is to be 1-3 pages, typed and single spaced. Grammar, spelling, and punctuation will be graded along with the content of the assignment.
The assignments are to be sent in a plain, simple, easy-to-read Word and Excel file if needed. Include your name at the top of each document. Follow the Instructions for Assignments requirements and Reference Format.
Your friend, Liz, loves to shop at Target and is now interested in investing in the company.
$5.00Your friend, Liz, loves to shop at Target and is now interested in investing in the company. Tom, another friend, has told her that Target’s debt structure is risky with obligations of nearly 74% of total assets. Liz sees that debt on the balance sheet is 65% of total assets and is confused by Tom’s comment. Write an explanation to Liz discussing the debt structure of Target and why Tom thinks Target is risky. Be sure to explain clearly what information appears on financial statements, as well as what information does not appear directly on the financial statements. Use the information below in your discussion.
At fiscal year-end February 2, 2008, Target Corporation had the following assets and liabilities on its balance sheet (in millions):
Current liabilities $11,782 Long-term debt 15,126 Other liabilities 2,345 Total assets 44,560 Target reported the following information on leases in the notes to the financial statements:
Total rent expense was $165 million in 2007, $158 million in 2006, and $154 million in 2005, including percentage rent expense of $5 million in 2007, 2006, and 2005. Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term to more than 50 years. Certain leases also include options to purchase the leased property.
Future minimum lease payments required under non-cancellable lease agreements existing at February 2, 2008, were:Future Minimum Lease Payments (in Millions) Operating Leases Capital Leases 2008 $ 239 $ 12 2009 187 16 2010 173 16 2011 129 16 2010 123 17 After 2010 2, 843 155 Total future minimum lease payments $3694 (a) $232 Less: Interest (b) (105) Present value of minimum capital lease payments $127 (c) a) Total contractual lease payments include $1,721 million related to options to extend lease terms that are reasonably assured of being exercised, and also include $98 million of legally binding minimum lease payments for stores that will open in 2008 or later.
(b) Calculated using the interest rate at inception of each lease.
(c) Includes current portion of $4 million.Purple Haze Machine Shop is considering a four-year project to improve its production efficiency
$1.00Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $470,000 is estimated to result in $190,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $80,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $2,500 in inventory for each succeeding year of the project. If the shop’s tax rate is 35% and its discount rate is 9 percent, should the company buy and install the machine press?
Lang Industrial systems company (LISC) is trying to decide between two different conveyor belt systems
$1.00Lang Industrial systems company (LISC) is trying to decide between two different conveyor belt systems. System A costs $240,000, has a four-year life, and requires $75,000 in pretax annual operating costs. System B costs $340,000, has a six-year life, and requires $69,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. If tax rate 34% and the discount rate is 8%, which project should the firm choose?
Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards..
$1.00Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $6,000,000 bank loan to finance service equipment. The loan has an interest rate of 10% and would be amortized over 5 years, with 5 end-of-year payments. Sutton can also lease the equipment for 5 end-of-year payments of $1,790,000 each. How much larger or smaller is the bank loan payment than the lease payment? Note: Subtract the loan payment from the lease payment.
Comparative statement data for Farris Company and Ratzlaff Company
$5.00Comparative statement data for Farris Company and Ratzlaff Company, two competitors, appear below. All balance sheet data are as of December 31, 2015, and December 31, 2014.
Farris Company Ratzlaff Company 2015 2014 2015 2014 Net sales $1,549,035 $339,038 Cost of goods sold 1,080,490 241,000 Operating expenses 302,275 79,000 Interest expense 8,980 2,252 Income tax expense 54,500 6,650 Current assets 325,975 $312,410 83,336 $ 79,467 Plant assets (net) 521,310 500,000 139,728 125,812 Current liabilities 65,325 75,815 35,348 30,281 Long-term liabilities 108,500 90,000 29,620 25,000 Common stock, $10 par 500,000 500,000 120,000 120,000 Retained earnings 173,460 146,595 38,096 29,998 Instructions
(a)Prepare a vertical analysis of the 2015 income statement data for Farris Company and Ratzlaff Company in columnar form.
(b)Comment on the relative profitability of the companies by computing the return on assets and the return on common stockholders’ equity for both companies.
10.9 STORE-DRIVEN FORECASTS
$3.0010.9 STORE-DRIVEN FORECASTS.
The Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. Despite declining sales and difficult economic conditions in 2007 and 2008, The Home Depot continued to invest in new stores. The following table provides summary data for The Home Depot.
Required
a. Use the preceding data for The Home Depot to compute average revenues per store, capital spending per new store, and ending inventory per store in 2008.
b. Assume that The Home Depot will add 100 new stores by the end of Year +1. Use the data from 2008 to project Year +1 sales revenues, capital spending, and ending inventory. Assume that each new store will be open for business for an average of one-half year in Year _1. For simplicity, assume that in Year +1, Home Depot’s sales revenues will grow, but only because it will open new stores.
Additional Files:
