What did I do correctly and what did I do incorrectly, also if you can help me with any of the missing numbers that would be great!

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Inbox (219) – apter 5 Quiz – BA-205-HI@Final exam CH 5-7. Flashcar* Chapter 5 Quiz.docx@BA 1500 Chapter 5 FlashcarGrades – BA-205-HB2: BUSIChapter 3X(2) Yassuo | TRICK’S ULTIMAXhttps://newconnect.mheducation.com/flow/connect.htmlChapter 3SavedHelpSave & ExitSubmitCheck my workRequired informationPart[The following information applies to the questions displayed below.]Ricky’s Piano Rebuilding Company has been operating for one year. On January 1, at the start of its second year, itsincome statement accounts had zero balances and its balance sheet account balances were as follows:10pointsCash$ 6, 300 Accounts Payable$ 8Accounts Receivable31, 000Deferred Revenue( deposits)4, 450BookSupplies2, 550 Notes Payable (long-term) 49, 000Equipment12, 300 Common Stock12, 500Land9, 150 Retained Earnings12, 500HintBuildingPrintFollowing are the January transactions:a. Received a $760 deposit from a customer who wanted her piano rebuilt in Februaryb. Rented a part of the building to a bicycle repair shop; $785 rent received for JanuaryReferencesc. Delivered five rebuilt pianos to customers who paid $21,475 in cash.d. Delivered two rebuilt pianos to customers for $10,500 charged on account.Received $8,100 from customers as payment on their accounts.Received an electric and gas utility bill for $600 for January services to be paid in February.g. Ordered $1,120 in supplies.Paid $2,250 on account in January.Paid $15,900 in wages to employees in January for work done this month.Received and paid cash for the supplies in (g).5-a. Prepare an income statement for the month ended and at January 31.5-b. Prepare a statement of retained earnings for the month ended and at January 31.-c. Prepare a classified balance sheet for the month ended and at January 31.Conanswers in the tabs below.< PrevEducationof 8Next >paW?ENG2:11 AM1/23/2019

 

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“1. TSW. Inc had the following data for last year: Net income = $800; Net operation profit after taxes (NOPAT)= $700; Total assets= $3000; Total operation capital = $2000. Information for the just-completed year is as follows: Net income = $1000; Net operation profit after taxes (NOPAT) = $925; Total assets = $2600; and Total operation capital = $2500. How much free cash flow did the firm generate during the just-completed year?a. $383b.$425c. $468d.$514e.$5662. Edwards Electronics recently reported $11250 of sales, $5500 of operation costs other than depreciation , and $1250 of depreciation. The company had no amortization charges, it had $3500 of bonds that carry a 6.25% interest rate, and its federal plus state income tax rate was 35%. How much was its net cash flow?a.$3284.75b.$3457.63c.$3639.61d.$3831.17e.$4032.813. HHH Inc, reported $12500 of sales and $7025 of operating costs (including depreciation). The company had $18750 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 9.5% and the federal plus state income tax rate was 40%. What was HHH’s Economic Value Added (EVA), i.e., how much value did management add to stockholders wealth during the year?a.$1357.13b. $1428.56c.$1503.75d.$1578.94e.$1657.884. Pace Corp.’s assets are $625,000 and its total debt outstanding is & 185,000. The new CFO wants to employ a debt ratio of 55%. How much debt must the company add or subtract to achieve the target debt ratio?a.$158,780b. $166,688c.$175,022d.$183,773e.$192,9625. LeCompte Corp. has $312,900 of assets, and it uses only common equity capital(zero debt). Its sales for the last year were $620,000 and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?a. 7.57% b. 7.95% c. 8.35% d. 8.76% e. 9.20%6. Last year Altman Corp. had $205,000 of assets, $303,500 of sales, $18250 of net income, and a debt to total assets ratio of 41%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152,500. Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio. By how much would the reduction in assets improve the ROE?a. 4.69% b. 4.93% c. 5.19% d. 5.45% e. 5.73%7. Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.a. investment A pays $250 at the beginning of every year for the next 10 years(a total of 10 payments).b. investment B pays $125 at the end of every 6 month period for the next 10 years(total of 20 payments).c. Investment C pays $125 at the beginning of every 6 months period for the next 10 years(total 20 payments).d. Investment D pays $2500 at the end of 10 years(just 1 payment)e. Investment E pays $250 as the end of every year for the next 10 years(total of 10 payments).8. You have a chance to buy an annuity that pays $5000 at the beginning of each year for 5 years. You could earn 4.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?a. $20,701 b. $21,791 c. $22,938 d, $24,085 e. $25,2899. Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?a. $24,736 b. $26,038 c. $27,409 d. $28,779 e. $30,21810. You plan to borrow $35,000 at 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal end of year payments. How much interest would you be paying in Year 2?a. $1,99.49 b. 2099.46 c. 2209.96 d. 2326.27 e. 2442.5911. Your sister turned 35 today, and she is planning to save $7000 per year for retirement, with the first deposit to be made one year from today. She will invest in a mutual fund that’s expected to provide a return of 7.5% per year. She plans to retire 30 years from today, when she turns 65 and she expects to live for 25 years after retirement to age 90. Under these assumptions, how much can she spend each year after she retires? Her first withdrawal will be made at the end of her first retirement year.a. $58,601 b. 61,686 c. 64,932 d. 68,179 e. 71,58812. McCue Inc.’s bonds currently sell for $1250. The pay a $120 annual coupon, have 15 year maturity and a $1000 par value, but they can be called in 5 years at $1050. Assume that no cost other that the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond’s YTM and its YTC?(subtract the YTC from YTM).a. 2.11% b. 2.32% c. 2.55% d. 2.80% e. 3.09%13. Moerdyk Corporations bonds have a 10 year maturity, a 6.25% semiannual coupon and a par value of $1000. the going interest rate(RD) is 4.75%, based on semiannual compounding. What is the bonds price?a. 1063.09 b. 1090.35 c. 1118.31 d, 1146.27 e. 1174.9314. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures to a market value basis. KJM Corporations balance sheet as of today is as follows:Long term debt(bonds, at par) $10,000,000Preferred stock 2,000,000Common stock($10par) 10,000,000Retained earnings 4,000,000Total debt and equity $26,000,000The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firs debt?a. $5,276,731 b. 5,412,032 c. 5,547,332 d. 7,706,000 e. 7,898,65015. O’Brien Ltd.’s outstanding bonds have a $1000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $850. What is the bond’s nominal(annual) coupon interest rate?a. 6.27% b. 6.60% c. 6.95% d. 7.32% e. 7.70%16. Maxwell Inc. stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return and a 20% chance of producing a -28% return. What is the firms expected rate of return?a. 9.41% b. 9.65% c. 9.90% d. 10.15% e. 10.40%17. Moerdyk Company’s stock has a beta of 1.40 the risk free rate is 4.25% and the market risk premium is 5.50%. What is the firms required rate of return?a. 11.36% b. 11.65% c. 11.95% d. 12.25% e. 12.55%18. Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The markets required rate of return is 13.25%, the risk free rate is 7.00% and the Funds assets are as follows:Stock Investment BetaA $200,000 1.50B $300,000 -0.50C $500,000 1.25D $1,000,000 0.75a. 9.58% b. 10.09% c. 10.62% d. 11.18% e. 11.77%19. Magee Inc.’s manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firms returns will have the probability distribution shown below. What’s the standard deviation of the estimated returns?(hint:use the formula for the standard deviation of a population, not a sample)Economic Conditions Prob. ReturnStrong 30% 32.0%Normal 40% 10.0%Weak 30% -16.0%a. 17.69% b. 18.62% c. 19.55% d. 20.52% e. 21.55%20. Whited Inc.’s stock currently sell for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock RS is 11.50%. What is the stocks expected price 5 years from now?a. $40.17 b. 41.20 c. 42.26 d. 43.34 e. 44.4621. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company’s beta is 1.15, the market risk premium is 5.00% and the risk free rate is 4.00%. What is the company’s current stock price, P0?a. $18.62 b. 19.08 c. 19.56 d. 20.05 e. 20.5522. Nachman Industries just paid a dividend of D0=$1.32. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2 and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value.a. $41.59 b. 42.65 c. 43.75 d. 44.87 e. 45.9923. If D1=$1.50, g(which is constant)=6.5%, and P0=$56, what is the stocks expected capital gains yield for the coming year?a. 6.50% b. 6.83% c. 7.17% d. 7.52% e. 7.90%24. the Ramirez Company’s last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expedited to grow at a rate of 6% forever. Its required return(rs) is 12%. What is the best estimate of the current stock price?a. $41.58 b. 42.64 c. 43.71 d. 44.80 e. 45.92

Loan Amortization ScheduleLoan amountAnnual interest rateLoan period in yearsNumber of payments per yearStart date of loanOptional extra payments Enter values $560,000.00 4.20 % 2 12…

 

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Twenty-nine-year-old Moe Miller had recently been appointed managing director at M&M Pizza, a premium pizza producer in the small country of Francostan. As a third-generation director of M&M Pizza, Miller was anxious to make his mark on the company with which he had grown up. The business was operating well, with full penetration of the Francostani market, but Miller felt that the financial policies of the company were overly conservative. Despite generating strong and steady profitability of about F$100 million per year over recent memory, M&M Pizza’s stock price had been flat for years, at about F$25 per share.1 

His new office, Miller discovered, had an unobstructed view of the nearby marble quarry. How wonderfully irrelevant, he thought to himself as he turned to the financial analysis on his desk. With borrowing costs running at only 4%, he felt confident that recapitalizing the balance sheet would create sustained value for M&M owners. His plan called for issuing F$500 million in new company debt and using the proceeds to repurchase F$500 million in company shares. The plan would leave assets, profits, and operations of the business unchanged but allow M&M to borrow at the relatively low prevailing market yields on debt and increase dividends per share. Committed to raising the share price, Miller felt it was time to slice up the company’s capital structure a little differently. 

Francostan 

The Mediterranean island nation of Francostan had a long tradition of political and economic stability. The country had been under the benevolent rule of a single family for generations. The national economy maintained few ties with neighboring countries, and trade was almost nonexistent. The population was stable, with approximately 12 million prosperous, well-educated inhabitants. The country was known for its exceptional IT and regulation infrastructure; citizens had unrivaled access to business and economic information. Economic policies in the country supported stability. Price inflation for the national currency, the Franco dollar, had been near zero for some time and was expected to remain so for the foreseeable future. Short- and long-term interest rates for government and business debt were steady at 4%. Occasionally, the economy experienced short periods of economic expansion and contraction. 

The country’s population was known for its high ethical standards. Business promises and financial obligations were considered fully binding. To support the country’s practices, the government maintained no bankruptcy law, and all contractual obligations were fully and completely enforced. To encourage economic development, the government did not tax business income. Instead, government tax revenue was levied through personal income taxes. There was a law under consideration to alter the tax policy by introducing a 20% corporate income tax. To maintain business investment incentives under the plan, interest payments would be tax deductible. 

The Recapitalization Decision 

Miller’s proposed recapitalization involved raising F$500 million in cash by issuing new debt at the prevailing 4% borrowing rate and using the cash to repurchase company shares.2 Miller was confident that shareholders would be better off. Not only would they receive F$500 million in cash, but Miller expected that the share price would rise. M&M maintained a dividend policy of returning all company profits to equity holders in the form of dividends. Although total dividends would decline under the new plan, Miller anticipated that the reduction in the number of shares would allow for a net increase in the dividends paid per remaining share outstanding. With a desire to set the tone of his leadership at M&M, Miller wanted to implement the initiative immediately. The accounting office had provided a set of pro forma M&M financial statements for the coming year (Exhibit 1). 

Based on a rudimentary knowledge of corporate finance, Miller estimated the current cost of equity (and WACC) for M&M with the current no-debt policy at 8% based on a market risk premium of 5% and a company beta of 0.8. Miller appreciated that, because equity holders bore the business risk, they deserved to receive a higher return. Nonetheless, from a simple comparison of the 8% cost of equity with the 4% cost of debt, equity appeared to be an expensive source of funds. To Miller, substituting debt for equity was a superior financial policy because it gave the company cheaper capital.3 With other business inputs, the company was aggressive in sourcing quality materials and labor at the lowest available cost. Shouldn’t M&M do the same for its capital?

Questions

1. How do the financial statements for M&M Pizza vary with the proposed repurchase plan? Do the alternative policies improve the expected dividends pershare?

2. What impact does the repurchase plan have on M&M?s weighted-average costof capital?

3. What are the debt and equity claims worth under the alternative scenarios? 

4. Which proposal is best for investors? What do you recommend Miller to do?

Please use some exhibit to calculate the plan.

Attached file is the Exhibit 1.

 

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Incident – The Safety Problem

ABC Manufacturing Company employs 300 workers at its main plant in the Northern Ontario. One of its major product lines is compressors for air conditioners. All compressors are tested when they come off the assembly line. Two years ago William Carlson was 28 years old, a high school graduate, and had been employed in the compressor division for five years. His job was to test each compressor using a standard procedure. Each inspector goes through an extensive training program where proper procedures for testing compressors are explained and demonstrated. In addition, inspectors are required to follow the detailed procedures for testing each unit specified in the company manual. No deviations from those procedures are permitted by a company policy.

Two years ago as Carlson was testing a compressor when it exploded and he was killed on the spot. The ABC Manufacturing Company expressed sympathy to the family but also indicated that the company had provided proper training, proper clothing, proper warnings, and proper procedures. It reiterated its commitment to employee safety and implied that the cause of the explosion was probably due to improper employee testing procedures, which were neither known nor approved by the company.

Carlson’s family hired an attorney on a contingency basis to pursue a lawsuit against the ABC Manufacturing Company. Recently, the case was heard in the court. During court testimony it was revealed that most of the inspectors, including Carlson, had developed various “shortcuts” to reduce the time required to test each compressor. Some continued to use the shortcuts, even after the accident. The plaintiff’s lawyer argued that it was not clear that Carlson had violated procedures, but if he did, the company had an obligation to know about the deviations and take steps to bring inspectors back to the proper testing procedures. In addition, he argued the company was responsible for providing training, periodically reinforcing proper procedures, and monitoring practices to assure conformity to proper procedures. The jury then retired to consider a verdict and, if the company was found guilty of safety violations, to assess appropriate penalties.

ABC Manufacturing then brought in an attorney from corporate headquarters to defend the company. Thomas King had a law degree from Queen’s University School of Law and had been practicing law for 27 years, and 12 of those years he had been counselor for ABC Manufacturing with an excellent track record of defending the company in areas of safety and health. King had focused his law practice in the area of health and safety and was always up-to-date with information regarding data and trends in this field. For example, he knew the following:

·        There are approximately 4.3 million injuries per year among private sector firms.

·        Each year the cost of occupational injuries and illnesses total more than $165 billion.

·        In any year approximately 80 million working days are lost because of the job injuries

·        In the most recent 6,480 employees died from work accidents

King knew that Ontario legislature passed the Occupational Health and Safety Act in 1990 to ensure the safety and health of workers by settling and enforcing standards; providing training, outreach and education; establishing partnerships; and encouraging continual improvements in workplace safety and health. The most recent fatality numbers were only about one-third of the number of workers deaths reported in the late 1980s. Consequently, most observers believed the Act has been effective in reducing workplace injuries.

King was also aware that a supervisor in another company’s construction site was charged with criminal negligence because he had failed to take “reasonable steps to prevent bodily harm” that had caused a worker’s death on his watch. Five years ago the supervisor pleaded guilty to eight counts of failing to ensure compliance under the Act and received a $50,000 fine. Subsequently, the same company was charged with criminal negligence for causing another death related to failure to correctly package cement blocks on pallets. The company subsequently pleaded guilty and paid another fine of $110,000 dollars. King knew he needed to prove to the jury that ABC Manufacturing had done everything they could to develop safety policies, communicate these policies to all employees, and train new and current employees periodically regarding safety procedures.

Question: What are some recommendations that can be made to help resolve the main issues facing the firm. Provide a step by step breakdown of what tools/systems the company can implement to help remedy their main problems (examples of their problems not enough monitoring by managers, not hiring the right employees who are skilled and able to follow safety procedures).

 

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