1. Your company has sales of $100,000 this year and cost of goods sold of $72,000. You forecast sales to increase to $110,000 next year. Using the percent of sales method, forecast next year’s cost of goods sold.

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  1. 1. Your company has sales of $100,000 this year and cost of goods sold of $72,000. You forecast sales to increase to $110,000 next year. Using the percent of sales method, forecast next year’s cost of goods sold.
  2. 2. For the next fiscal year, you forecast net income of $50,000 and ending assets of $500,000. Your firm’s payout ratio is 10%. Your beginning stockholders’ equity is $300,000 and your beginning total liabilities are $120,000. Your non-debt liabilities such as accounts payable are forecasted to increase by $10,000. What is your net new financing needed for next year?

 

16. Using the information, calculate this company’s:

Net Income50,000Beginning Total Assets400,000Beginning Stockholders’ Equity250,000Payout Ratio0%

  1. Internal growth rate.
  2. Sustainable growth rate.
  3. Sustainable growth rate if it pays out 40% of its net income as a dividend.

 

Foreign Exchange

  1. You have just landed in London with $500 in your wallet. Stopping at the foreign exchange booth, you see that pounds are being quoted at $1.95/£. For how many pounds can you exchange your $500?
  2. Your firm needs to pay its French supplier €500,000. If the exchange rate is €0.65/$, how many dollars will you need to make the exchange?

How much would profit fall if you eliminated all late fees?

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  1. Please write the Netflix “CEO’s Letter to Shareholders” for December 31, 2011 (the case period).
  2. Also, please write a memo addressing this scenario: Put yourself back in the year 2000 in the Blockbuster CEO’s office.
    1. How much would profit fall if you eliminated all late fees?
    2. How much would profit fall if chose not to cut late fees and lost some customers to Netflix in the following two years as a result?
    3. Based on these calculations, what would you have done?
    4. What threats does Netflix face today?
    5. Why did Netflix propose splitting into two companies?
    6. Was it a bad idea or a good idea executed badly?
    7. Why did Netflix not face many other competitors in the DVD-by-mail business?
    8. Why didn’t other firms succeed in challenging them?

1-2 page memo

5B exercise question :

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5B exercise question :

Step 1 Review material about coca cola and at the coca cola website. Review current news articles about coca cola company.

Step 2 Review information about a major rival to coca cola company.

Determine whether you believe COCA could or should try to acquire. Give the pros and cons of such a horizontal integration strategy. Recall that coca cola recently acquired rival.

 

Q2. End of Chapter 6 and do Exercise 6A “Perform a SWOT Analysis for Coca-Cola” as an individual, one page assignment.

6A Exercise : Develop a SWOT Matrix for coca cola

Company.  Follow all the SWOT guidelines provided in the chapter, including notation (for example, S4, T3) at the end of each strategy.Include two strategies in each of the four (SO,ST, WT, WO) quadrants. Be specific regarding your strategies, avoiding generic terms such as forward integration.

a. Determine the present value of the mixed stream of cash flows using a 5%

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a. Determine the present value of the mixed stream of cash flows using a 5%

discount rate.

b. How much would you be willing to pay for an opportunity to buy this

stream, assuming that you can at best earn 5% on your investments?

c. What effect, if any, would a 7% rather than a 5% opportunity cost have on

your analysis? (Explain verbally.)

 

P4–37 Annuities and compounding Janet Boyle intends to deposit $300 per year in a

credit union for the next 10 years, and the credit union pays an annual interest

rate of 8%.

 

a. Determine the future value that Janet will have at the end of 10 years, given

that end-of-period deposits are made and no interest is withdrawn, if

(1) $300 is deposited annually and the credit union pays interest annually.

(2) $150 is deposited semiannually and the credit union pays interest

semiannually.

(3) $75 is deposited quarterly and the credit union pays interest quarterly.

b. Use your finding in part a to discuss the effect of more frequent deposits and

compounding of interest on the future value of an annuity.

 

P4–43 Loan amortization schedule Joan Messineo borrowed $15,000 at a 14%

annual rate of interest to be repaid over 3 years. The loan is amortized into

three equal, annual, end-of-year payments.

 

a. Calculate the annual, end-of-year loan payment.

b. Prepare a loan amortization schedule showing the interest and principal

breakdown of each of the three loan payments.

c. Explain why the interest portion of each payment declines with the passage

of time.

 

P4–51 Interest rate for an annuity Anna Waldheim was seriously injured in an industrial

accident. She sued the responsible parties and was awarded a judgment of

$2,000,000. Today, she and her attorney are attending a settlement conference

with the defendants. The defendants have made an initial offer of $156,000 per

year for 25 years. Anna plans to counteroffer at $255,000 per year for 25 years.

Both the offer and the counteroffer have a present value of $2,000,000, the

amount of the judgment. Both assume payments at the end of each year.

 

a. What interest rate assumption have the defendants used in their offer

(rounded to the nearest whole percent)?

b. What interest rate assumption have Anna and her lawyer used in their

counteroffer (rounded to the nearest whole percent)?

c. Anna is willing to settle for an annuity that carries an interest rate assumption

of 9%. What annual payment would be acceptable to her?

 

P11–6 EBIT sensitivity Stewart Industries sells its finished product for $9 per unit. Its

fixed operating costs are $20,000, and the variable operating cost per unit is $5.

 

a. Calculate the firm’s earnings before interest and taxes (EBIT) for sales of

10,000 units.

b. Calculate the firm’s EBIT for sales of 8,000 and 12,000 units, respectively.

c. Calculate the percentage changes in sales (from the 10,000-unit base level)

and associated percentage changes in EBIT for the shifts in sales indicated

in part b.

d. On the basis of your findings in part c, comment on the sensitivity of changes

in EBIT in response to changes in sales.

 

P11–7 Degree of operating leverage Grey Products has fixed operating costs of

$380,000, variable operating costs of $16 per unit, and a selling price of $63.50

per unit.

 

a. Calculate the operating breakeven point in units.

b. Calculate the firm’s EBIT at 9,000, 10,000, and 11,000 units, respectively.

c. With 10,000 units as a base, what are the percentage changes in units sold

and EBIT as sales move from the base to the other sales levels used in part b?

d. Use the percentages computed in part c to determine the degree of operating

leverage (DOL).

e. Use the formula for degree of operating leverage to determine the DOL at

10,000 units.

 

P11–10 Degree of financial leverage Northwestern Savings and Loan has a current capital

structure consisting of $250,000 of 16% (annual interest) debt and 2,000

shares of common stock. The firm pays taxes at the rate of 40%.

 

a. Using EBIT values of $80,000 and $120,000, determine the associated earnings

per share (EPS).

b. Using $80,000 of EBIT as a base, calculate the degree of financial leverage

(DFL).

c. Rework parts a and b assuming that the firm has $100,000 of 16% (annual

interest) debt and 3,000 shares of common stock.

 

Solve for the unknown number of years in each of the following (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

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Solve for the unknown number of years in each of the following (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

 

Present Value Years Interest Rate Future Value
$ 540 [removed] 9 % $ 1,317
790 [removed] 10 1,743
18,200 [removed] 17 277,707
21,300 [removed] 15 414,506

 

In 1895, the first Putting Green Championship was held. The winner’s prize money was $230. In 2014, the winner’s check was $1,450,000.

 

What was the percentage increase per year in the winner’s check over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 

  Increase per year [removed] %

 

If the winner’s prize increases at the same rate, what will it be in 2030? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

 

  Winner’s prize in 2030 $ [removed]

 

 

 

 

 

 

In 1895, the first Putting Green Championship was held. The winner’s prize money was $230. In 2014, the winner’s check was $1,450,000.

 

What was the percentage increase per year in the winner’s check over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 

  Increase per year [removed] %

 

You have just made your first $5,600 contribution to your retirement account. Assume you earn a return of 11 percent per year and make no additional contributions.

 

What will your account be worth when you retire in 39 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

 

  Future value $ [removed]

 

What if you wait 10 years before contributing? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

 

  Future value $ [removed]

 

You expect to receive $43,000 at graduation in two years. You plan on investing it at 9.75 percent until you have $178,000.

 

How long will you wait from now? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Questions on Decision Analysis

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Questions on Decision Analysis

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1. One of Philip Mahn’s investments is going to mature, and he wants to determine how to invest the proceeds of $30,000. Philip is considering two new investments: a stock mutual fund and a one-year certificate of deposit (CD). The CD is guaranteed to pay an 8% return. Philip estimates the return on the stock mutual fund as 16%, 9%, or -2%, depending on whether market conditions are good, average, or poor, respectively. Philip estimates the probability of a good, average, and poor market to be 0.1, 0.85, and 0.05, respectively. Construct a payoff matrix. What decision should be made according to the maximax decision rule? What decision should be made according to the maximin decision rule? What decision should be made according to the minimax regret decision rule? What decision should be made according to the EMV decision rule? What decision should be made according to the EOL decision rule? How much should Philip be willing to pay to obtain a market forecast that is 100% accurate?

2. Morley Properties is planning to build a condominium development on St Simons Island, Georgia. The company is trying to decide between building a small, medium, or large development. The payoffs received for each size of development will depend on the market demad for condominiums in the area, which could be low, medium, or high. The payoff matrix for this decision problem is: Market Demand Size of Development Low Med High Small 400 400 400 Medium 200 500 500 Large -400 300 800 (Payoffs in 1,000s) The owner of the company estimates a 21.75% chance that market demand will be low, a 35.5% chance that it will be medium, and a 42.75% chance that it will be high. What decision should be made according to the EMV decision rule? Solve using a decision tree.

3. Bulloch County never has allowed liquor to be sold in restaurants. However, in three months, county residents are scheduled to vote on a referendum to allow liquor to be sold by the drink. Currently, polls indicate a 60% chance that the referendum will be passed by voters. Phil Jackson is a local real estate speculator who is eyeing a closed restaurant building that is scheduled to be sold at a sealed bid auction. Phil estimates that if he bids $ 1.25 million, there is a 25% chance he will obtain the property; if he bids $ 1.45 million, there is a 45% chance he will obtain the property; and if he bids $ 1.85 million, there is an 85% chance he will obtain the property. If he acquires the property and the referendum passes, Phil believes he could then sell the restaurant for $ 2.2 million. However, if the referendum fails, he believes he could sell the property for only $ 1.15 million.

a. Develop a decision tree for this problem.

b. What is the optimal decision according to the EMV criterion