Finance

Gen 2- Powerboat. The company is considering Gen 2 as a green alternative to Gen 1 and requires further information to assist in the final decision. According to Viviers and Cohen (2011), motor manufacturers with projects that span on average 6 years equally prefer the net present value (NPV) and internal rate of return (IRR) methods, followed by payback period (PB). The Chief Financial Officer of Zubeir Engineering is looking to substantiate the financial implications of the manufacture of a new powerboat. At the request of the Chief Financial Officer, you are required to use projected cashflow to write comprehensive report on merit of each project using common capital budgeting methods. The projects have a minimum required return of 10%. Below are the projected cashflows from the both the projects: minimum required return of 10%. Below are the projected cashflows from the both the projects: Year 0 1 2 Gen 1-Powerboat Cash Flow ($ 21,500,000) $ 8,924,800 $ 8,294,800 0 21,500,000-$ 21,500,000-$ -$ 18,924,800$ 6,400,000$ 2,524,800$ 2 8,294,800$ 7,400,000$ 894,800$ 37,664,800$ $ 7,664,800 $ 7,034,800 $ 6,404,800 $ 10.322.000 Gen 2-Powerboat Cash Flow ($ 21,500,000) $ 6,400,000 $ 7,400,000 $ 7,900,000 $ 8,600,000 $ 9,300,000 $ 11,100,000 4 5 6 3. Capital Budgeting Techniques. 3.1 Net present Value. – Calculate NPV for both the projects and interpret your findings. 3.2 Internal Rate of Return – Calculate IRR for both the projects and interpret your findings. 3.3 Payback Period 1 – Calculate payback periods for both the projects and interpret your findings with cut- off point is 6 years. 3.4 Profitability Index – Calculate profitability index for both the projects and interpret your findings. Zubeir Engineering Limited is one of top high-speed boat Manufacturer in the Middle Eastern Region. The capital budgeting strategies in the company involves a three- phase approach: planning or budgeting, evaluation, and post completion reviews. The first phase involves identification of likely projects at strategic planning time. These are selected to support the strategic objectives of the corporation. This identification is generally broad in scope with minimal financial evaluation attached. Projects are classified as new product, cost savings, capacity expansion, etc. As the planning process focuses more closely on the short-term plans (or budgets), major capital expenditures are scrutinized more rigorously. Project costs are more closely honed, and specific projects may be reconsidered. Each project is then individually reviewed and authorized. Planning, developing, and refining cash flows underlie capital analysis at Zubeir Engineering. Once the cash flows have been determined, the application of capital evaluation techniques such as those using net present value, internal rate of return, profitability index and payback period is routine. Presentation of the results is enhanced using sensitivity analysis, which plays a major role for management in assessing the critical assumptions and resulting impact. The final phase relates to post completion reviews in which the original forecasts of the project’s performance are compared to actual results and/or revised expectations. Zubeir Engineering has identified two mutually exclusive projects, Gen 1-powerboat and Gen 2- Powerboat. The company is considering Gen 2 as a green alternative to Gen 1 and requires further information to assist in the final decision. According to Viviers and Cohen (2011), motor manufacturers with projects that span on average 6 years equally prefer the net present value (NPV) and internal rate of return (IRR) methods, followed by payback period (PB). The Chief Financial Officer of Zubeir Engineering is looking to substantiate the financial implications of the manufacture of a new powerboat. At the request of the Chief Financial Officer, you are required to use projected cashflow to write comprehensive report on merit of each project using common capital budgeting methods. The projects have a minimum required return of 10%. Below are the projected cashflows from the both the projects: Year Gen 1-Powerboat Cash Flow Gen 2-Powerboat Cash Flow 0 ($ 21,500,000) ($ 21,500,000) $ 8,924,800 $ 6,400,000 2 $ 8,294,800 $ 7,400,000 $ 7,664,800 $ 7,900,000 $ 7,034,800 $ 8,600,000 $ 6,404,800 $9,300,000 $ 10,322,000 $ 11,100,000 UAWNO 6

calculate the capital budgeting techniques using excel ( show the working please) EXPERT ANSWER

The Glass Factory, Inc. has just ended the 2012 production year. The balance sheet and income statement are presented below. Two of the four key financial statements remain to be prepared for the stockholders’ report. Balance Sheet Glass Factory, Inc. December 31, 2011 and 2012 2012 2011 Assets Cash $1,000 $ 500 Accounts receivable 5,000 4,500 Inventory 7,000 6,000 Gross fixed assets $20,000 $15,000 Accumulated depreciation 10,000 9,000 Net fixed assets $10,000 $ 6,000 $17.000 Total assets $23.000 Liabilities and stockholders’ equity Accounts payable $ 2,000 $ 1,500 Notes payable 3,000 2,500 Accruals 500 500 Long-term debt 10,000 6,000 Common stock at par 500 500 Paid-in capital in excess of par 5,500 5,500 Retained earnings 1,500 500 Total liabilities and stockholders’ equity $23,000 $17,000 Income Statement Glass Factory, Inc. for the Year Ended December 31, 2012 Sales Cost of goods sold $40,000 21,000 Gross profits $10,000 Operating expenses 13,000 Operating profits $ 6,000 Interest expense 2,000 Net profits before taxes $ 4,000 Taxes (40%) 1,600 Net Income after taxes $ 2.400 Required: a. Calculate the amount of cash dividends paid during 2012. b. Calculate the depreciation expense incurred during 2012. c. Prepare a statement of retained earnings for the year ended December 31, 2012. d. Prepare the statement of cash flows for the year ended December 31, 2012.

EXPERT ANSWER (a) We will calculate the dividends by the following equation: Ending balance of retained earnings = Beginning balance of retained earnings + Net income – Dividends paid $1500 = $500 + $2400 – Dividends paid Dividends paid = $500 + $2400 – $1500 Dividends paid = $1400 (b) Accumulated depreciation represents the depreciation charged till …

The Glass Factory, Inc. has just ended the 2012 production year. The balance sheet and income statement are presented below. Two of the four key financial statements remain to be prepared for the stockholders’ report. Balance Sheet Glass Factory, Inc. December 31, 2011 and 2012 2012 2011 Assets Cash $1,000 $ 500 Accounts receivable 5,000 4,500 Inventory 7,000 6,000 Gross fixed assets $20,000 $15,000 Accumulated depreciation 10,000 9,000 Net fixed assets $10,000 $ 6,000 $17.000 Total assets $23.000 Liabilities and stockholders’ equity Accounts payable $ 2,000 $ 1,500 Notes payable 3,000 2,500 Accruals 500 500 Long-term debt 10,000 6,000 Common stock at par 500 500 Paid-in capital in excess of par 5,500 5,500 Retained earnings 1,500 500 Total liabilities and stockholders’ equity $23,000 $17,000 Income Statement Glass Factory, Inc. for the Year Ended December 31, 2012 Sales Cost of goods sold $40,000 21,000 Gross profits $10,000 Operating expenses 13,000 Operating profits $ 6,000 Interest expense 2,000 Net profits before taxes $ 4,000 Taxes (40%) 1,600 Net Income after taxes $ 2.400 Required: a. Calculate the amount of cash dividends paid during 2012. b. Calculate the depreciation expense incurred during 2012. c. Prepare a statement of retained earnings for the year ended December 31, 2012. d. Prepare the statement of cash flows for the year ended December 31, 2012. Read More »

What is a company’s responsibility to society? Proponents of the modern view of stakeholder theory argue that companies have a social obligation to operate in ethically, socially, and environmentally responsible ways. This active approach is referred to as corporate social responsibility (CSR) orcorporate citizenship. The idea of corporate citizenship is that a firm should conduct its business in a manner that meets its economic, legal, ethical, and philanthropic expectations.

The economic responsibilities have the highest priority. A firm must be efficient and survive over the long term in order to be useful to society. It must also execute its business activities in a legal and ethical way. These responsibilities are over and above the ones codified in laws and are in line with societal …

What is a company’s responsibility to society? Proponents of the modern view of stakeholder theory argue that companies have a social obligation to operate in ethically, socially, and environmentally responsible ways. This active approach is referred to as corporate social responsibility (CSR) orcorporate citizenship. The idea of corporate citizenship is that a firm should conduct its business in a manner that meets its economic, legal, ethical, and philanthropic expectations. Read More »

Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money Having spent several years in the bank’s investments department, he’s well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Eliot intends to use $1 million of his inheritance to purchase 4US. Treasury bonds 1 An 8 65%, 13-year bond that’s priced at S 1 096 21 to yield 7 48% 2. A 7 814%, 15-year bond thats priced at $102527 to yield 7 53% 3. A 20-year stripped Treasury (zero coupon) that’s priced at S 199.67 to yield 822% 4, A 24-year, 742% bond thats priced at S955 93 to yield 7 83%, Note that these bonds are semiannual compounding bonds a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio if Eliot puts $250,000 into each of the 4 U.S Treasury bonds c. Find the duration of the portfolio if Elliot puts $310.000 each into bonds 1 and 3 and $190,000 each into bonds 2 and 4 d. Which portfolio -b or c should Eliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain From which portfolio does he stand to make more in annual interest income? Which portfolio would you recommend and why? a. The duration and modified duration can be calculated using a spreadsheet, such as Excell It gives the precise duration measure because it avoids the rounding-off errors, which are inevitable with manual calculations Bond 1 13 years, 865%, priced to yield 7 48% The duration of this bond isyears. (Round to two decimal places ) The modified duration of this bond is years, (Round to two decimal places) Bond 2 15 years, 7.814% priced to yield 7.53% Click to select your answer(s) Activate Wind Elliot Karlin is a 35 year-old bank executive who has just inherited a large sum of money Having spent several years in the bank’s investments department, he’s well aware of the concept of duration and decides to apply it to his bond portiolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 Us. Treasury bonds 1 An865%, 13-year bond that’s priced at $1,096 21 to yield 748% 2A7814%, 15-year bond tars priced at S 1025 27 to yield 753% 3A20 year stripped Treasury (zero coupon)thars pred atS199 67 to yield 8 22% 4 A 24-year, 7 42% bond that’s priced at $955 93 to yield 7 83% Note that these bonds are semiannual compounding bonds a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio i# Eliot puts $250,000 into each of the 4 U.S Treasury bonds С.Find the duration of the portfolio if Eliot puts S310000 each into bonds 1 and 3 and S 190,000 each it bonds 2 and 4 d. Which portfolio-b orc-should Eliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portolio does he stand to make more in annual interest income? Which portfolio would you recommend, and why? Bond 2 15years, 7814% priced to yield 7 53% The duration of this bond isyears (Round to two decimal places) The modified duration of this bond isyears (Round to two decimal places) Bond 3 20 years, zero coupon, priced to yield 822% Theduration of this bond is□ years (Round to two decimal places) Th^ mod.ad ㅗ In.dib.누 bAn41.冖..as”. “On..nA L. ﹄o. Analm4f “ds~.. 노 Click to select your answer(s) Activa pe Having spent several years in the bank’s investments department, he’s Ellot Karlin is a 35 year-old bank executive who has just well aware of the concept of duration and decides to apply i to his bond portfolio In particular, Elliot intends to use sin Treasury bonds I An865%, 13-year bond that’s priced at S1 096 21 to yield 1.48% 2 A 7 814%, 15-year bond that’s priced at S 1025 27 to yield 7 53% 3 A 20-year stripped Treasury (zero coupon) that’s priced at $199 67 to yield 8 22% 4A24 year, 742% bond thats priced at S955 93 to yield 7 83% Note that these bonds are semiannual compounding bonds inherited a large sum of money a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio i Eliot puts $250.000 into each of the 4 U.S. Treasury bonds c. Find the duration of the portfolio if Elliot puts $310,000 each into bonds 1 and d. Which 3 and $190,000 each into bonds 2 and 4 portfolio–b or c-should Eliot select if he thinks rates are about to head up and he wants to avoid as much price volatililty as possible? Explain. From annual interest income? Which portiolio would you recommend, and why? which portolio does he stand to make more in The modified duration of this bond is years. (Round to two decimal places.) Bond 4 24 years, 7 42%, priced to yield 7 83% The dration of this bond is□years (Round to two decimal places) The modifed duration of this bond isyears (Round to two decimal places) -b. Find the duration af the whole bond potolo i Elot puts $250,000 nto each of the 4 U S. Treasury bonds The duration of this Dortfolio įs vears CRound to two decimal places.) Click to select your answer(s) Elliot Karlin is a 35-year -old bank well aware of the concept of duration and decides to apply Rt to his bond portiolio. In particular, Elliot intends to use $1 Treasury bonds 1 An 8 65%, 13-year bond that’s priced at $1,096 21 to yield 7 48% 2 A 7 814%, 15-year bond that’s priced at $1025 27 to yield 7 53% 3 A 20 year stripped Treasury (zero coupon) that’s priced at $199 67 to yield 8 22% 4 A 24-year, 7 42% bond Note that these bonds are semiannual compounding bonds executive who has just inherited a large sum of money Having spent several years in the bank’s investments department, he’s millin of his inheritance to purchase 4 U.S that’s priced at $955 93 to yield 7 83% a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into c. Find the duration of the porfolo if Elliot puts $310.000 each into bonds 1 and 3 and $190,000 each into bonds 2 and 4 each of the 4US Treasury bonds Which portfolio-b or e-should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From more in annual interest income? Which portfolio would you recommend, and why? b. Find the duration of the whole bond potolio i Ellot puts $250,000 into each of the 4 US Treasury bonds The duration of this portilo is□years (Round to two decimal places) C. Find the duration of the portfolio it Elliot puts $310,000 each into bonds 1 and 3 and $190.000 each into bonds 2 and 4 The duration of this portolilo is years (Round to two decimal places) d. Which portolio-the portfolio in part b or the portfollo in part c-should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? (Choose the best answer below ) Click to select your answer(s) Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money Having spent several years in the bank’s investments department, he’s well a are of the concept of dration and decides to apply it to his bond portfolio n particular, Eliot intends to use S 1 mil on of his inheritance to purchase 4 U S Treasury bonds I An865%, 13-year bond that’s priced at S1,096 21 to yield 748% 2 A 7 814%, 15-year bond that’s priced at $102527 to yield 7 53% 3 A 20 year stripped Treasury (zero coupon) that’s priced at S 199 67 to yield 822% 4 A 24 year, 7 42% bond that’s priced at S 955 93 to yield 7 83% Note that these bonds are semiannual compounding bonds a. Find the duration and the modified duration of each bond b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into each of the 4 US. Treasury bonds. c. Find the duration of the portfolio if Elliot puts $310,000 each into bonds 1 and 3 and $190,000 each into bonds 2 and 4 d. Which portfolio-b or c should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he stand to make more in annual interest income? Which portfolio would you recommend, and why? d. Which portfolilo the portolio in part b or the porfolilo in part c-should Elliot select ihe thinks rates are about to head up and he wants to avoid as much price volatility as possible? (Choose the best answer below O A. He should invest in either portfolio. The portfolio in part c has a higher duration than the portfolio part b f rates are about to rise, then it is O B He should invest in the portfolio in part b The portfolio in part c has a higher duration than the portfolio in part b lf rates are about to rise, then it is safer to o c He should i est in the portfolio n part c The portfolio in part b has a higher durati than the portfolio in parte l tates are about to rise, then it is safer to n n He should invest in the n rtfolin in nar, c The re rtfolin in nart r has a hinher duration “han ‘ha nntf I ǐn nart h lf tates ara ahon’ to rise then is riskier tn Click to select your answer(s) invest in either portfolio, because both portfolios would be equally price volatie invest in the portfolio in part b. because it would be less price volatile than the other portfolio invest in the portfolio in part c, because it would be less price volatile than the other portfolo Activate Windo

EXPERT ANSWER

What are some actions that stockholders can take to ensure that management’s and stockholders’ interests are aligned?

EXPERT ANSWER As the fundamental conflict of interest is build in intorelationships between stockholders and management, the managementscience has a few ways to mitigate it by aligning interests of bothgroup as close as possible.The most popular and probably the most efficient way toachieve that goal is to grant stock bonuses with extended vestingschedules, as it …

What are some actions that stockholders can take to ensure that management’s and stockholders’ interests are aligned? Read More »

You owe your best friend $2,000. Because you are short on cash, you offer to repay the loan over 12 months under the following condition. The first payment will be $100 at the end of month one. The second payment will be $100 + G at the end of month two. At the end of month three, you’ll repay $100 + 2G. This pattern of increasing G amounts will continue for all remaining months.

What is the value of G if the interest rate is 0.5% per month? What is the equivalent uniform monthly payment? Repeat Part (a) when the first payment is $150 (i.e. determine G). EXPERT ANSWER Solution:a. $2,000 = $100(P/A, .5%, 12) + G(P/G, .5%, 12)$2,000 = $100(11.6189) + G(63.214)G = $13.26b. A = $2,000(A/P, .5%, …

You owe your best friend $2,000. Because you are short on cash, you offer to repay the loan over 12 months under the following condition. The first payment will be $100 at the end of month one. The second payment will be $100 + G at the end of month two. At the end of month three, you’ll repay $100 + 2G. This pattern of increasing G amounts will continue for all remaining months. Read More »

Question: Welma wants to buy an elephant but she does not currently have the 14,000 required to buy the typ…

Welma wants to buy an elephant but she does not currently have the 14,000 required to buy the type of elephant she wants. 1. If she hopes to buy the elephant at this same price in three years, how much does she need to invest in 5% annually compounding T-bills at this moment in time …

Question: Welma wants to buy an elephant but she does not currently have the 14,000 required to buy the typ… Read More »