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W2 Professional Assignment 1 :
Search Yahoo Finance and/or any other credible source(s) to find the most recent income statement and balance sheet of a major corporation, then perform a vertical financial analysis incorporating:
Debt ratio
Debt to equity ratio
Return on assets
Return on equity
Current ratio
Quick ratio
Inventory turnover
Days in inventory
Accounts receivable turnover
Accounts receivable cycle (in number of days)
Accounts payable turnover
Accounts payable cycle (in number of days)
Earnings per share (EPS)
Price to earnings ratio (P/E)
Cash conversion cycle (CCC)
Working capital
Explain Dupont identity. Apply it to your selected company. Interpret the components in Dupont identity.
Provide detailed and precise explanations and definitions. Be sure to submit the financial statements along with the vertical financial analysis.
W5 Comprehensive Learning Assessment 1 –
Please note this CLA 1 assignment consists of two separate parts. The first part gives the cash flows for two mutually exclusive projects and is not related to the second part. The second part is a capital budgeting scenario.
Part 1
Calculate the payback period, IRR, MIRR, NPV, and PI for the following two mutually exclusive projects. The required rate of return is 15% and the target payback is 4 years. Explain which project is preferable under each of the four capital budgeting methods mentioned above:
Table 1
Cash flows for two mutually exclusive projects
Year
Investment A
Investment B
0
-$5,000,000
-5,000,000
1
$1,500,000
$1,250,000
2
$1,500,000
$1,250,000
3
$1,500,000
$1,250,000
4
$1,500,000
$1,250,000
5
$1,500,000
$1,250,000
6
$1,500,000
$1,250,000
7
$2,000,000
$1,250,000
8
0
$1,600,000
Part 2
Study the following capital budgeting project and then provide explanations for the questions outlined below:
You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers (stringed instruments). The market for zithers is growing quickly. The company bought some land three years ago for $2.1 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $2.3 million on an after-tax basis. In four years, the land could be sold for $2.4 million after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $125,000. An excerpt of the marketing report is as follows:
The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,600, 4,300, 5,200, and 3,900 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $750 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. PUTZ believes that fixed costs for the project will be $415,000 per year, and variable costs are 15% of sales. The equipment necessary for production will cost $3.5 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $350,000. Networking capital of $125,000 will be required immediately. PUTZ has a 38% tax rate, and the required rate of return on the project is 13%.
Now provide detailed explanations for the following:
Explain how you determine the initial cash flows.
Discuss the notion of sunk costs and identify the sunk cost in this project.
Verify how you determine the annual operating cash flows.
Explain how you determine the terminal cash flows at the end of the project’s life.
Calculate the NPV and IRR of the project and decide if the project is acceptable.
If the company that is implementing this project is a publicly traded company, explain and justify how this project will impact the market price of the company’s stock.
Provide detailed and precise explanations and definitions. Comment on your findings and provide references for content when necessary. Explain everything in your own words.
W6 Professional Assignment 2 :
PA 2 includes two parts: Part 1 is an evaluation of beta and WACC, and Part 2 the acquisition of data in preparation for CLA 2. You need to complete both parts in your three- to five-page, APA-formatted report to demonstrate your comprehensive evaluation of the company’s opportunity cost as well as your skills in retrieving and organizing historical data on securities for the purpose of portfolio formation.
Search Yahoo Finance, or any other credible source to retrieve the most recent income statement and balance sheet for a major leveraged corporation.
Provide these statements in proper format and include a screenshot of the data.
Retrieve the data on the company’s historical data and calculate its annual rate of return by using adjusted closing prices for the past 10 years.
Using the data on the company’s stock rate of return and the index’s rate of return, estimate the beta of the corporation. Compare this value with the value stated by the source.
Retrieve the risk-free rate of return as the annual interest rate of US treasuries. Based on these values, estimate the expected annual rate of return of the corporation’s security. Compare your estimate with the expected rate of return as evaluated based on your data in Part 2.
Using the financial statements mentioned above, estimate the annual rate of interest paid by the corporation (cost of debt).
Additionally, find the tax rate and capitalization ratio (proportions among equity and debt). Using these values, estimate the annual weighted cost of capital (WACC) of the corporation.
This part of the assignment is in preparation for CLA 2. Choose five (5) major securities from different industries, one of which can be the one you chose in Part 1 of the question.
Retrieve the data on the companies’ historical data and calculate annual rate of return for the past 20 years for each security.
Provide detailed and precise explanations and definitions. Comment on your findings and provide references for content when necessary. Explain everything in your own words.
W7 Comprehensive Learning Assessment 2 (CLA 2) :
This is a complete written report of your portfolio formation in a Word document. Your historical data and relevant derived values in tables can be pasted from your previous calculations in the Excel spreadsheet. Please provide explanations of all calculations and the justifications in Word format. Make sure to also paste all underlying Excel formulae that you used for calculations in the Word document.
Once again, provide the data that you presented in answering Part 2 of Professional Assignment 2.
Calculate the mean, variance, and the standard deviation of each security’s annual rate of return.
Calculate the correlation coefficient between every possible pair of securities’ annual rates of return.
Choose percentages of your initial investment that you want to allocate amongst the five (5) securities (weights in the portfolio).
Create embedded formulae which generate statistical properties of the portfolio upon insertion of the weights.
Observe the mean, the standard deviation, and the CV of the annual rate of return of the portfolio.
Find the combination of the weights that minimizes CV of the portfolio.
How does the CV of the optimal portfolio compare with the CVs of its constituents?
What is the expected rate of return and standard deviation of the rate of return of the portfolio?
Choose different values within the range of the standard deviation of the portfolio, and for each chosen value, locate the corresponding point on the efficient frontier by finding the weights that maximize the expected rate of return of the portfolio.
Subsequently, construct the efficient frontier of your portfolio.
Assume that you initially invested $1,000,000 in the portfolio and that the distribution of the annual rate of return of the portfolio is normal.
What is the distribution of the return of the portfolio 20 years after its formation?
Provide the graph of the distribution of the return of the portfolio.
Provide your explanations and definitions in detail and be precise. Comment on your findings. Provide references for content when necessary.
