MBA6010 Managerial Finance
Week 1 Project
Instructions
Assume you have just earned your master's degree in finance and are now employed by the Cosmo K Manufacturing Group. Your employment is contingent on your successful completion of several tasks over the next four weeks and the successful completion of a comprehensive exam to obtain company certification in finance. Each week, you will be assigned projects of interest to the company that will test your competence in finance.
Gerry has decided that you need some experience in evaluating other firms in the marketplace. Accordingly, he has asked you to select any company listed on the NYSE or the NASDAQ. For your selected company, identify and download the most recent financial statements for the last three to five years, to include the following:
Balance sheet
Income statement
Per share data
Tasks:
Gerry would like you to complete the following tasks and submit your report by the end of the week:
Identify the predominant industry in which your company operates. Find the industry averages for that industry for the following ratios:
Current ratio
Debt ratio
Quick ratio
Debtequity ratio
Total asset turnover
Profit margin
Inventory turnover
Return on assets
Receivables turnover
Return on equity
Calculate as many of the listed ratios for your selected company as possible using the financial statements you acquired.
Conduct a trend analysis for the last three to five years. What trends can you identify? What do they indicate?
Compare the ratios for the last common year to the industry averages. What conclusions can you draw regarding your company's performance? What are your company's strengths and weaknesses?
Identify the changes that need to be made by the company to improve its performance, as compared to the industry, on the basis of the ratios.
Conduct a DuPont analysis for your selected company. What conclusions can you draw for improving your company's performance on the basis of this analysis?
MBA6010 Managerial Finance
Week 2 Project
Instructions
Your probationary period at the Cosmo K Manufacturing Group continues. Your supervisor, Gerry, assigns you a project each week to test your competence in finance. This week, Gerry has asked you to evaluate several investment opportunities available to the company. Your instructions are to consider each situation independently of the others, unless otherwise indicated.
Evaluating Investment Opportunities
Consider the following situations and answer the related questions:
Your company has the opportunity to make an investment that promises to pay $24,000 after 6 years. If your company has a required return of 8.5% on this type of investment, what is the maximum amount that the company should pay for the investment? Explain your answer.
In the previous scenario, assume that your company negotiated a deal where it would pay $12,000 for the investment and receive a payment of $24,000 at the end of 7 years. What is the IRR on this investment? Should the company make the investment? Explain your answer.
Another investment opportunity available to your company involves the purchase of some common stock from Zorp Corporation. The company has asked you to evaluate the stock, which paid a dividend of $4.25 last year and is currently selling for $36 per share. If your company decides to buy the stock, the stock will be held for 5 years and then sold. The growth rate on the stock is constant at 3% per year, and your company's required return on the stock would be 11%. What is the maximum price per share that your company should pay for the stock?
Zorp Corporation also has some bonds for sale that your company is considering. These bonds have a $1,000 par value and will mature in 16 years. The coupon rate on the bonds is 5% paid annually, and they are currently selling for $987 each. The bonds are call protected for the next 4 years, and after this period, they are callable at 105. On the basis of this information, answer the following questions:
What is the YTM on these bonds?
If the bonds are called immediately after the call protection period, what would be the yield to call (YTC)?
If the bonds paid interest semiannually instead of annually, would the YTC, the YTM, or both change? Explain your answers.
MBA6010 Managerial Finance
Week 3 Project
Your probationary period at the Cosmo K Manufacturing Group continues. Your supervisor, Gerry, assigns you a project each week to test your competence in finance.
The company is considering the addition of a new office machine that will perform many of the tasks now performed manually. For this week's task, Gerry has given you the responsibility of evaluating the cash flows associated with the new machine. He has requested the report to be delivered within the week.
Evaluation of a New Office Machine
The Cosmo K Manufacturing Group currently has sales of $1,400,000 per year. It is considering the addition of a new office machine, which will not result in any new sales but will save the company $105,500 before taxes per year over its 5year useful life. The machine will cost $300,000 plus another $12,000 for installation. The new asset will be depreciated using a modified accelerated cost recovery system (MACRS) 5year class life. It will be sold for $25,000 at the end of 5 years. Additional inventory of $11,000 will be required for parts and maintenance of the new machine. The company evaluates all projects at this risk level using an 11.99% required rate of return. The tax rate is expected to be 35% for the next decade.
Tasks:
Answer the following questions:
What is the total investment in the new machine at time = 0 (T = 0)?
What are the net cash flows in each of the 5 years of operation?
What are the terminal cash flows from the sale of the asset at the end of 5 years?
What is the NPV of the investment?
What is the IRR of the investment?
What is the payback period for the investment?
What is the profitability index for the investment?
According to the decision rules for the NPV and those for the IRR, is the project acceptable?
Is there a conflict between the two decision methods? If so, what would you use to make a recommendation?
What are the pros and cons of the NPV and the IRR? Explain your answers.
MBA6010 Managerial Finance
Week 4 Project
Your probationary period at the Cosmo K Manufacturing Group continues.
For this week's project, Gerry has asked you to consider two mutually exclusive investments and incorporate risk considerations into the process of evaluation.
The Cosmo K Manufacturing Group is considering the addition of a new smelting machine or a new paving machine. The two investments are mutually exclusive; if one is selected, the other is rejected. The annual cash flows after taxes and the effects of depreciation, which begin one year from project start, and their respective probabilities are given below:
.0%">
.34%">
Smelting Machine

.66%">
Paving Machine

.16%">
Probability

.18%">
Net Cash Flows per Year

.16%">
Probability

.52%">
Net Cash Flows per Year

.16%">
0.2

.18%">
$14,100.00

.16%">
0.2

.52%">
$2,000.00

.16%">
0.5

.18%">
$16,000.00

.16%">
0.5

.52%">
$16,000.00

.16%">
0.2

.18%">
$17,000.00

.16%">
0.2

.52%">
$22,000.00

.16%">
0.1

.18%">
$20,000.00

.16%">
0.1

.52%">
$33,000.00

Each project has an expected life of 4 years and will cost $45,000. The riskier project will be evaluated at the company's WACC plus 3%, and the less risky project will be evaluated at the company's WACC. Cosmo K has the following capital structure:
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.34%">
Debt:

.66%">
30%

.34%">
Preferred stock:

.66%">
16%

.34%">
Common stock:

.66%">
54%

This capital structure is current and consistent with the company's objectives and so will be used to raise any new funds. All new debt will be raised using longterm bonds, with no shortterm debt being used for the new project. New bonds will have a coupon rate of 13%. The company's common stock is currently selling for $65 per share, paid a dividend of $4.25 last year, and has an expected growth rate of 6% indefinitely. There will be no floatation costs on new common stock. Preferred stock can be sold for $90 per share and pays a dividend of $10, with a floatation cost of $2 per share. Currently, the market risk premium is 5% and the riskfree rate is 8%. Cosmo K's beta coefficient is currently 1.23 and is expected to be consistent for the foreseeable future. The tax rate is expected to be 40% for the next decade.
Tasks:
Answer the following questions:
What is the component cost of capital for the company? Calculate using the CAPM.
What is the company's WACC?
What are the expected cash flows for the investments?
What is the standard deviation for each investment?
What is the coefficient of variation for each investment?
Given the data above, which investment has the higher risk?
What is the expected net present value (NPV) for each investment?
What is the internal rate of return (IRR) of the investments?
According to the decision rules for the NPV and those for the IRR, is there an acceptable project? Explain your answer.
Is there a conflict between the two decision methods? If so, what would you use to recommend a project?
MBA6010 Managerial Finance
Week 5 Project
Exam
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Access dates:

.68%">
1/2/1900 12:00:00 AM to 1/1/2018 12:00:00 AM

.32%">
Can be reviewed in Gradebook on:

.68%">
1/1/2017 11:59:00 PM

.32%">
Number of times this exam can be taken:

.68%">
1

.32%">
Time allowed to complete:

.68%">
3

This is the last week of your probationary period at the Cosmo K Manufacturing Group. You have demonstrated your competence in finance by successfully completing the four projects that your supervisor, Gerry, assigned you each week.
Your task this week is to successfully complete the comprehensive exam for your company certification.
This section consists of 45 multiplechoice questions. Read the questions and select the correct option.