A country initially has a population of four million people and is increasing at a rate of 5% per year. If the country’s annual food supply is initially adequate for eight million people and is increasing at a constant rate adequate for an additional 0.25 million people per year.
a. Based on these assumptions, in approximately what year will this country first experience shortages of food?
b. If the country doubled its initial food supply and maintained a constant rate of increase in the supply adequate for an additional 0.25 million people per year, would shortages still occur? In approximately which year?
c. If the country doubled the rate at which its food supply increases, in addition to doubling its initial food supply, would shortages still occur?
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The Ventron Engineering Company has just been awarded a $2 million development contract by the U.S. Army Aviation Systems Command to develop a blade spar for its Heavy Lift Helicopter program. The blade spar is a metal tube that runs the length of and provides strength to the helicopter blade. Due to the unusual length and size of the Heavy Lift Helicopter blade, Ventron is unable to produce a single-piece blade spar of the required dimensions using existing extrusion equipment and material.
The engineering department has prepared two alternatives for developing the blade spar:
Sectioning or
An improved extrusion process.
Ventron must decide which process to use. (Backing out of the contract at any point is not an option.) The risk report has been prepared by the engineering department. The information from this report is explained next.
The sectioning option involves joining several shorter lengths of extruded metal into a blade spar of sufficient length. This work will require extensive testing and rework over a 12-month period at a total cost of $1.8 million. Although this process will definitely produce an adequate blade spar, it merely represents an extension of existing technology.
To improve the extrusion process, on the other hand, it will be necessary to perform two steps:
Improve the mate-rial used, at a cost of $300,000, and
Modify the extrusion press, at a cost of $960,000.
The first step will require six months of work, and if this first step is successful, the second step will require another six months of work. If both steps are successful, the blade spar will be available at that time, that is, a year from now.
The engineers estimate that the probabilities of succeeding in steps 1 and 2 are 0.9 and 0.75, respectively. However, if either step is unsuccessful (which will be known only in six months for step 1 and in a year for step 2), Ventron will have no alternative but to switch to the sectioning process—and incur the sectioning cost on top of any costs already incurred. Development of the blade spar must be completed within 18 months to avoid holding up the rest of the contract. If necessary, the sectioning work can be done on an accelerated basis in a six-month period, but the cost of sectioning will then increase from $1.8 million to $2.4 million.
The director of engineering, Dr. Smith, wants to try developing the improved extrusion process. He reasons that this is not only cheaper (if successful) for the current project, but its expected side benefits for future projects could be sizable. Although these side benefits are difficult to gauge, Dr. Smith’s best guess is an additional $2 million. (These side benefits are obtained only if both steps of the modified extrusion process are completed successfully.)
Perform a data analysis of the risk report for the VP of Research and Development to support or reject Dr. Smith’s suggestion.
Develop a decision tree to maximize Ventron’s EMV. This includes the revenue from this project, the side benefits (if applicable) from an improved extrusion process, and relevant costs. You don’t need to worry about the time value of money; that is, no discounting or net present values are required. Summarize your findings in words in the spreadsheet.
Address what value of side benefits would make Ventron indifferent between the two alternatives?
Estimate how much would Ventron be willing to pay, right now, for perfect information about both steps of the improved extrusion process? (This information would tell Ventron, right now, the ultimate success or failure outcomes of both steps.)
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Problem Set with questions designed to measure mastery of the content of the module. Each Problem Set has two (2) documents: Problem Set (questions) and Excel Template. Excel is the industry standard for finance work and is required to complete and submit each Problem Set. The provided Excel Template may be used or you may create an original spreadsheet. If you choose to use the Excel template provided, download it for better usability. Every question should have its own tab. Show all your formulas as this allows the instructor to better assess how to help you and award partial credit as deems appropriate.
Week 1 – Introductions, Financial Statements, and Ratios
This problem set uses Alaska Air Group, Inc. as the basis for ALL questions. To start, go to the airline’s investor relations page and get its latest annual report (10-K).
1. Using the firm’s selected financial data:
a. Make a table showing the income statement (in million $). Note that any expenses that do not have their own specific line listed should be grouped under “All other expenses”. The net income lines must tie using formulas.
b. Use the table created to create a common size income statement (as a % of operating revenues for that year).
c. Show year-on-year (YoY, in %) growth
d. What happened to the profit margins?
e. What are the actual tax rates?
2. Using the operating stats, what is the YoY growth rate for: a. Yield?
b. Operating expense per available seat mile (CASM)? c. Revenue passenger miles (RPMs)?
d. Fuel price ($/gallon)?
e. Considering the above, what factors, other than the pandemic, do you think are
3. Using the firm’s balance sheets, show:
a. Balance sheets as shown (in million $); show only net property & equipment lines.
b. Common size balance sheets.
c. Are there any outliers in the balance sheets that you think merit mentioning?
d. For these years, what is the net working capital position? Current ratio? Quick ratio? Total debt ratio? Return on assets (ROA)? Return on equity (ROE)? What is the latest p/e ratio (use Yahoo Finance)?
4. Using the Statement of Cash Flows, which items stand out to you and why?
a. What are the top three markets by share? b. What happened to passenger yields?
c. What happened to costs per ASM?
d. What do you think this means for the bottom line? e. What are the top three city pairs?
Week 2 – Discounted Cash Flow Valuations and Net Present Value
Remember that when you use the perpetuity formula, the formula automatically present values the perpetuity one period, so if you use the perpetuity formula in year 15, the result is as of the beginning of year 15!
1. You are offered three annuities (these make equal payments over a specific period). Using an annual 5.5% discount rate, calculate each annuity’s price:
#
Price ($)
Payments ($/month)
Life (years)
1
?
195
6
2
?
200 (growing @ 1%/year)
5
3
?
135 (growing @ 2.5%/year)
Forever
2. You purchase a new machine for your firm. It costs $84,000 and will expand your cash flow by $13,500/year in year 1 growing by 2.5% per year after that. The system will work for 30 years before you have to replace it. What are the NPV (at a 5.5% discount rate) and IRR?
The vendor offers you another machine costing $99,000 and lasting 35 years, with the same yearly cash flow and growth rate. What are the NPV and the IRR for it? Should you get it?
a. Use July 1, 2011, to calculate the future value of the $5.9M owed on July 1, 2000.
b. Use July 1, 2011, to calculate the present value of the 25 yearly payments of
$1,193,248.20. The first payment is made on July 1, 2011
c. Should Bobby take it? Why?
4. You are looking to lease a car. The dealer offers you the following: Car price = $35,000
Monthly lease payments = $499
Down payment = $3,000
Lease term = 36 months
Purchase price at end of lease = $18,000
What is the implicit interest rate on the lease?
5. The Airbus A220 has the following R&D costs (all negative cash flows):
€400M (year 1)
€300M (year 2)
€200M (year 3)
€100M (year 4)
Each plane will be sold for €48M – 15% down and the rest due on delivery one year later. The cost to produce each plane is €38M – these costs are recognized on delivery. The Sales and Marketing Department says that you will sell 30 planes (year 5) and sale will grow by 5 planes per year before they plateau at 60 planes. The last sale is made in year 16, when the A220 is replaced by a new model.
What are the NPV (as of the beginning of year 1) and the IRR of the plane using a 9% discount rate?
Week 3 – Risk Analysis, Real Options, and Capital Budgeting
1. Real Options
A. JTMAirlinesislookingatbuyingmoregatesattheirhomeairport.JTM’sdiscountrateis 5.5% and the risk free rate is 2.0%. What is the NPV of the gate purchases if it bought them today? Use the data in the Excel template provided.
B. After you run the numbers for part A, you remember back to the concept of real options, which means that JTM can make investment decisions as time passes:
1. Present valuing the purchase price of the gates (that is, the years 1 and 2 Capital Expenditures) separately using the risk-free rate. Once JTM decides to go ahead with the purchase, there is no risk to that expenditure.
2. Present valuing the Net Cash Flow excluding those purchase prices. This calculation will include Cap. Ex. for years 3-15 as they are part of the normal operation of the gates and are unrelated to the purchase price.
3. Use the Black-Scholes Option Pricing formula to come up with option’s price assuming a 2-year maturity and a 15% price volatility for gate prices.
4. Compare the price of the call option with the NPV in the No Real Options scenario. Is the option worth it?
2. Decision Tree
JTM really liked your work on the option pricing of the gates, so they ask you to look at their 3- phase expansion at their home airport. The three phases are:
A. Uponpurchaseofthenewgates,startamarketingprogramtopromoteJTM’sroutesto the East Coast, West Coast, and the Caribbean. If all goes well and the market is receptive, they will go on to phase 2.
B. Phase2hasJTMinvestinnewroutestothedestinationslisted.Ifatanytime,JTM finds that this is not going to work, they will pull the plug on everything.
C. Phase3hasJTMstartthenewroutestothedestinationslisted.Ifthingsdon’tgowell on any of the three destinations, they will pull the plug on everything.
After much work with other departments, you generate enough data to calculate the NPV of the 3-phase expansion. Before you have a chance to save all your work, there is a power spike and you lose part of your work. You have to complete it for a presentation. Please use the Excel template provided to complete this.
Week 4 – Interest Rates and Bond Valuation
1. What is the annual yield of a 6-year, 6.4% semi-annual coupon-paying bond priced today at $1,190? Par is $1,000.
2. What is the annual yield of a 9-year, 4.1% annual coupon-paying bond priced today at $1,088? Par is $1,000.
3. Show the cash flows and prices for the following four bonds, each with a par value of $1,000 and paying interest semi-annually:
#
Coupon Rate
Years to Maturity
Market Yield
A
6.4%
8
4.5
B
3.7%
9
4.4
C
3.8%
9
4.6
D
0.0%
5
4.3
Which of the four bonds would you prefer to hold and why? (Answer in the box provided.)
4. Considerasemi-annualbondwithanannualcoupon=6.33%,maturity=10 years, par value = $1,000, and a market price today = $1,063:
a. Whatisitsyieldtomaturity(YTM)?
b. Supposethebondcanbecalledat$950attheendofyear8,whatis
itsyield to call?
5. You have two bonds with the following characteristics:
Characteristics
Bond A
Bond B
Coupon
4.4%
5.5%
Years to Maturity
7.5
5
Par Value
$1000
$1000
Price
$902.00
$911.00
a. Whatarethebonddurations?
b. Ifratesriseto4.5%,whatarethenewpricesforeachbond?
Week 5 – Valuing an Airline for Acquisition
JTM Airlines, a privately held firm, is looking to buy additional gates at its home airport for $1,500,000. It has money in the bank, but that money may not be spent as it is used to pay salaries, suppliers, and equipment. It asked its bank for a loan, but the bank refused unless the project had a return higher than JTM’s weighed average cost of capital. Separately, PAN Airways’s CEO approached JTM’s CEO to sell the airline. As a result of all this, JTM has contracted you to:
1. Calculate JTM’s weighed average cost of capital (WACC) based on two airlines trading in the capital markets – PDM and GAL. Since JTM does not trade, it has no beta, so you need to use these two firms as proxies. JTM’s CFO kindly gave you the necessary information on PDM and GAL for you to do this.
2. Aside from the purchase price, the gates will require a working capital infusion of $1,500,000 at purchase. JTM estimates the gates will generate cash flows of $295,500 in year 1, inflating at 4%/year over the next 12 years. After that, the gates will revert back to the airport operator. Half the working capital is recovered at the end. Calculate the NPV and IRR of the gates.
3. You were given PAN’s 2020 income statement (IS) and balance sheet (BS), along with forecasts of the revenue growth. Forecast the IS and BS for the next 5 years.
4. The price discussed by the two CEOs is $6.5M. You must value PAN Airways using free cash flows to see if this price is fair or not.
Week 6 – Multiples and Transactions, Dividend Discount Model
1. JTM Airlines is looking to buy Jaguar Airlines. Your boss, the CFO, wants a quick and dirty valuation of Jaguar. You choose to look at past transactions in the airline industry to get some numbers and put them in an Excel spreadsheet. For Jaguar, you find out the firm’s key financial values and put them in the spreadsheet. To remind yourself that they are inputs, you should color them red.
Using EPS, Book Value (BV), Sales, EBITDA, Premium and Synergy over stock price,what should be Jaguar’s prices per share?
2. Yourbossispilingontheworkandhasaskedyoutovaluethreemore potential acquisitions. They are of Northern, Eastern and Central, fixed base operators serving areas where JTM is looking to expand (the names give away the regions of the country). You don’t have cash flow data for these firms as they are privately held, but you talked to the owners and they gave you dividend information for the firms, which you entered into your spreadsheet. You remember back to your corporate finance class that you can use the Dividend Discount Model (DDM) to come up with a quick and dirty valuation.
You know that JTM’s WACC is 6.8% and will use this as the applicable discount rate.
Using the DDM Model, what are the values per share of each of these three firms?
Week 7 – Long Term Debt
1. A firm issues a $10 million debt obligation that pays 7.3% per year over four years. How much will it have to pay in four years?
2. Suppose that a life insurance company has guaranteed a payment of $14 million to a pension fund 4.5 years from now. If the life insurance company receives a premium of $10.4 million from the pension fund and can invest the entire premium for 4.5 years at an annual interest rate of 6.25%, will it have sufficient funds from this investment to meet the $14 million obligation?
3. A. A firm is borrowing $5,000,000 from its bank at an annual interest rate of 5.7% for the first six years and 7.2% for four years after that. How much will it pay at the end?
B. Suppose the firm in 3A can take another bank’s quote of $5,000,000 for 10 years at an annual rate of 6.1% compounded semiannually. How much would it pay at maturity? Is this investment alternative more attractive than the one in 3A?
4. Suppose a firm issues a $10 million debenture maturing in 8 years and with an annual rate of 7%. Interest is paid annually at the end of the year. How much will the firm have paid out in total as of year 8, when it pays the interest plus principal?
5. A firm’s head of HR knows that the following pension payments must be made in years 1- 4. The head of HR needs to go to management to request a lump sum that will satisfy this liability stream. Assuming the lump sum can be invested today at an interest rate of 4.7%, how much must be invested today to satisfy this liability stream?
Week 8 – Short Term Debt
1. You are in a team compiling a report to send to your firm’s bank. You are supposed to take the firm’s last three months and provide the following for each month:
Days receivable Days inventory Operating cycle Days payable Cash cycle
You have all the financials in the spreadsheet so all you need to do is make the calculations.
2. ABC Maintenance Service
A. ABC FBO sells maintenance services to various private jet operators.
For these, it demands payment within 30 days. It is considering changing this policy to 0.66%/7, net 30. What is the implicit annual rate in the new policy? Use a notional purchase of $10,000.
B. ABC’smaintenanceservicebusinessgrossessome $22M per year before discounts and its average days receivable is 30. If 15% of its clients opt to follow the new policy, what will be the change in receivables? If ABC’s WACC is 7.0%, what are the projected savings of the new policy? If its gross margin is 22%, by how much will gross dollar revenues have to rise to offset the loss from discounts? In percent?
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Each year, 1.5 million Americans are diagnosed with diabetes (American Diabetes Association, 2019). If left untreated, diabetic patients are at risk for several alterations, including heart disease, stroke, kidney failure, neuropathy, and blindness. There are various methods for treating diabetes, many of which include some form of drug therapy. The type of diabetes as well as the patient’s behavior factors will impact treatment recommendations.
For this Discussion, you compare types of diabetes, including drug treatments for type 1, type 2, gestational, and juvenile diabetes.
Reference: American Diabetes Association. (2019). Statistics about diabetes. Retrieved from http://diabetes.org/diabetes-basics/statistics/
To Prepare
Review the Resources for this module and reflect on differences between types of diabetes, including type 1, type 2, gestational, and juvenile diabetes.
Select one type of diabetes to focus on for this Discussion.
Consider one type of drug used to treat the type of diabetes you selected, including proper preparation and administration of this drug. Then, reflect on dietary considerations related to treatment.
Think about the short-term and long-term impact of the diabetes you selected on patients, including effects of drug treatments.
By Day 3 of Week 5
Post a brief explanation of the differences between the types of diabetes, including type 1, type 2, gestational, and juvenile diabetes. Describe one type of drug used to treat the type of diabetes you selected, including proper preparation and administration of this drug. Be sure to include dietary considerations related to treatment. Then, explain the short-term and long-term impact of this type of diabetes on patients. including effects of drug treatments. Be specific and provide examples. Atleast 4 reffereneces needed
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he highest quality papers in the writing industry. Our company only employs specialized professional writers who take pride in satisfying the needs of our huge client base by offering them premium writing services.
1. xPlease complete the following assignments IN EXCEL (show each assignment on a different tab):
Problem 1:
1) Kitchen Co., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31.
Required:
Prepare the journal entry to record bb Best investment on January 1, 2017.
2.The Balloon, Inc. Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2021. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.(FV of $1 (Links to an external site.), PV of $1 (Links to an external site.), FVA of $1 (Links to an external site.), PVA of $1 (Links to an external site.), FVAD of $1 (Links to an external site.) and PVAD of $1 (Links to an external site.))
Required:
a. Determine the price of the bonds at January 1, 2021.
b. Prepare the journal entry to record their issuance by CPA, Inc. (the bond) issuer on January 1, 2021, interest on June 30, 2021 and interest on December 31, 2021 (at the effective rate).
c. Prepare amortization table IN EXCEL
3.Please complete the following problems (in excel) – one assignment per tab:
Problem 1:
The following is a news item reported by Reuters:
WASHINGTON, Jan 29 (Reuters)—Blue Group, a maker of reconstructive implants for knees and hips, on Tuesday filed to sell 3 million shares of common stock.
In a filing with the U.S. Securities and Exchange Commission, it said it plans to use the proceeds from the offering for general corporate purposes, working capital, research and development, and acquisitions.
After the sale there will be about 31.5 million shares outstanding in the Arlington, Tennessee-based company, according to the SEC filing.
Blue’s shares closed at $17.15 on Nasdaq.
The common stock of Blue Group has a par of $.01 per share. Required:
Prepare the journal entry to record the sale of the shares assuming the price existing when the announcement was made and ignoring share issue costs.
Problem 2
During its first year of operations, Western Data Links Corporation entered into the following transactions relating to shareholders’ equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.
Feb. 12 Sold 2 million common shares, for $9 per share.13 Issued 40,000 common shares to attorneys in exchange for legal services.13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $945,000.Nov. 15
Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000.
Note: FMV of the common stock is $9 per share
Required:
Prepare the appropriate journal entries to record each transaction.
Problem 3
In 2016, Borland Semiconductors entered into the transactions described below. In 2013, Borland had issued 170 million shares of its $1 par common stock at $34 per share.
Required:
Assuming that Borland retires shares it reacquires, record the appropriate journal entry for each of the following transactions: (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
1.On January 2, 2016, Borland reacquired 10 million shares at $32.50 per share.2.On March 3, 2016, Borland reacquired 10 million shares at $36 per share.3.On August 13, 2016, Borland sold 1 million shares at $42 per share.4.
On December 15, 2016, Borland sold 2 million shares at $36 per share.
Problem 4
In 2016, Western Transport Company entered into the treasury stock transactions described below. In 2014, Western Transport had issued 140 million shares of its $1 par common stock at $17 per share.
Required:
Prepare the appropriate journal entry for each of the following transactions: (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
1.On January 23, 2016, Western Transport reacquired 10 million shares at $20 per share.2.On September 3, 2016, Western Transport sold 1 million treasury shares at $21 per share.3.On November 4, 2016, Western Transport sold 1 million treasury shares at $18 per share.
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Enjoy our bonus services. You can make a free inquiry before placing and your order and paying this way, you know just how much you will pay. Kitchen Co., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021.
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1. xPlease complete the following assignments IN EXCEL (show each assignment on a different tab):
Problem 1:
1) Kitchen Co., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2021. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31.
Required:
Prepare the journal entry to record bb Best investment on January 1, 2017.
2.The Balloon, Inc. Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2021. The bonds mature on December 31, 2030 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.(FV of $1 (Links to an external site.), PV of $1 (Links to an external site.), FVA of $1 (Links to an external site.), PVA of $1 (Links to an external site.), FVAD of $1 (Links to an external site.) and PVAD of $1 (Links to an external site.))
Required:
a. Determine the price of the bonds at January 1, 2021.
b. Prepare the journal entry to record their issuance by CPA, Inc. (the bond) issuer on January 1, 2021, interest on June 30, 2021 and interest on December 31, 2021 (at the effective rate).
c. Prepare amortization table IN EXCEL
3.Please complete the following problems (in excel) – one assignment per tab:
Problem 1:
The following is a news item reported by Reuters:
WASHINGTON, Jan 29 (Reuters)—Blue Group, a maker of reconstructive implants for knees and hips, on Tuesday filed to sell 3 million shares of common stock.
In a filing with the U.S. Securities and Exchange Commission, it said it plans to use the proceeds from the offering for general corporate purposes, working capital, research and development, and acquisitions.
After the sale there will be about 31.5 million shares outstanding in the Arlington, Tennessee-based company, according to the SEC filing.
Blue’s shares closed at $17.15 on Nasdaq.
The common stock of Blue Group has a par of $.01 per share. Required:
Prepare the journal entry to record the sale of the shares assuming the price existing when the announcement was made and ignoring share issue costs.
Problem 2
During its first year of operations, Western Data Links Corporation entered into the following transactions relating to shareholders’ equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.
Feb. 12 Sold 2 million common shares, for $9 per share.13 Issued 40,000 common shares to attorneys in exchange for legal services.13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $945,000.Nov. 15
Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000.
Note: FMV of the common stock is $9 per share
Required:
Prepare the appropriate journal entries to record each transaction.
Problem 3
In 2016, Borland Semiconductors entered into the transactions described below. In 2013, Borland had issued 170 million shares of its $1 par common stock at $34 per share.
Required:
Assuming that Borland retires shares it reacquires, record the appropriate journal entry for each of the following transactions: (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
1.On January 2, 2016, Borland reacquired 10 million shares at $32.50 per share.2.On March 3, 2016, Borland reacquired 10 million shares at $36 per share.3.On August 13, 2016, Borland sold 1 million shares at $42 per share.4.
On December 15, 2016, Borland sold 2 million shares at $36 per share.
Problem 4
In 2016, Western Transport Company entered into the treasury stock transactions described below. In 2014, Western Transport had issued 140 million shares of its $1 par common stock at $17 per share.
Required:
Prepare the appropriate journal entry for each of the following transactions: (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)
1.On January 23, 2016, Western Transport reacquired 10 million shares at $20 per share.2.On September 3, 2016, Western Transport sold 1 million treasury shares at $21 per share.3.On November 4, 2016, Western Transport sold 1 million treasury shares at $18 per share.
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