公司理财Cases

Case 1- Chapter 3 Harry PattersonWith a £9000 lottery win, Harbry Patterson and his wife decide to open a health food shop on 1st January 2xxl. He proposes to set up a company and will invest the £9000 in exchange for 1000 £1 ordinary shares each to him and his wife. He has arranged to rent the premises for £1800 pa which is payable quarterly in advance. During January he intends to buy for cash £9000 worth of fittings and equipment and a van for £3600 which he will not pay for until February.His sales and purchases estimates for the first three months of 2xxl are:Jan Feb MarSales (£) 2700 3600 4500Purchases 3000 2400 2700He anticipates that 10% of his sales will be on credit and that they will be paid for in the month following the sale. All purchases will be paid for one month after purchase. Expenses of the business are estimated to be :Wages £600 per month (payable immediately)General £300 per month (half payable immediately and half payable the next month) Depreciation £360 pa on fittings and equipment£720 pa on the vanGoods are sold at a price representing a 50% mark-up on cost price.PREPARE1. A cash budget for each of the three months Jan-Mar.2. A Profit and loss account for the period3. A Balance Sheet at the end of the periodComment briefly upon the profitability and liquidity of the business as it is forecast.Case 2—Chapter 5 Tongda通达公司是沈阳市的一家民营企业，成立初期，由于业务较为简单，暂由金华会计师事务所代账。

现在，企业规模逐渐扩大，正式雇佣一名刚刚大专毕业的王平担任公司会计。

王平未经过正式实习，经验不足，对企业业务总是计算不清，于是向我们求助。

（1）2002年1月1日，通达公司拟向沈阳信托投资公司融资租赁一台万能机床，双方在租赁协议中明确：租期截止到2007年12月31日，年租金5600元，于每年末支付一次，沈阳信托投资公司要求的利息及手续费率通常为5％。

红星机床厂得知此事后，主动与通达公司联系，愿意以28000元钱将一台同样机床出售给通达公司，王平陷入选择的矛盾之中。

（2）公司拟在2002年8月在东北大学设立一笔“助成奖学基金”，奖励计划为：从2003年8月起每年特等奖1人，金额为1万元；一等奖2人，每人金额5000元；二等奖3人，每人金额3000元；三等奖4人，每人金额1000元。

目前银行存款年利率为4%，并预测短期内不会发生变动，王平不知应一次向银行存入多少钱。

另外，王平月收入约3000元，每月生活支出约1500元，王平准备买房，父母可以帮他支付首期，他以后只需每月分期偿还银行贷款。

他想知道可承受得起大约多少钱的房子。

Tongda is a private enterprise in Shenyang. In its early days, it outsourced its accounting to Jinhua. Now, Tongda has gradually expanded its scale and hired a college graduate Wang Ping as its accountant. Wang Ping has not been formally trained as an accountant and lacks of experience. He asks us for help regarding the following:(1) On January 1, 2002, Tongda intends to lease a universal machine from Shenyang Trust and Investment Corporation. The lease agreement states an annual payment of RMB 5,600 made at the end of each year till December 31, 2007. Usually, Shenyang Trust and Investment Corporation charges an all-in-one rate of 5% for such arrangements. But when Red Star Machine Tool Works learns this, it proposes to sell the same machine at RMB 28,000 . Wang Ping doesn’t know which option is better.(2) Tongda intends to set up a Scholarship Fund at Northeastern University on August 2002 . Starting from August 2003, every year the fund will award RMB10,000 to 1 special prize winner, RMB 5,000 each to 2 first prize winners , RMVB3,000 each to 3 second prize winners, and RMB 1,000 each to 4 third prize winners. The current annual interest rate of bank deposits is 4% , and Tongda predicts no change in the interest rates in short term. Wang Ping does not know how much to deposit with the bank.In addition, Wang Ping has a monthly income of about 3,000 yuan, and his living expenses are about 1,500 yuan a month. Wang Ping plans to buy a flat. His parents offer to pay the down payment for him, so he will only need to repay bank loan in monthly installments. He wants to know he can afford a flat of about how much money.Case 3-Chapter 8-- GZ 07’ P&G Finance & Accounting, ―CFO Challenge‖ CompetitionI. Part I -- Case StudyBackground:US.Co China (an American multinational) is considering entering a new category in China that it did not play in the past. You are the Financial Analyst of the company and you are assigned to do a financial assessment for the entry decision. The minimum success criteria for any of the new product launch of the company are that a) new product gross margin in launch year should be +5% higher vs. market average; b) project Net Present Value (NPV-净现值) should be larger than $10 Million (over 5 YR project lif e). With the given information, you are required to answer the below 3 questions.Questions:⏹Cost is identified as one of the key considerations for the decision. Meanwhile, the decision of “mak e” vs. “buy”for bottle (package) has the biggest impact on cost. Can you assess the two options and come up with yourrecommendation (for 5 YR project life), ie. Which option is better? (Hint: the lead option becomes your basis for the financial assessment and assume we stick to the decision for 5 years)⏹What is your final recommendation for this new market entry based on below suggested considerations and thesuccess criteria? (<500 words)⏹If you are the General Manager, what are the top 3 priorities you will focus in the coming 5 years after welaunched the product? (<200 words)Key Areas of Consideration:⏹CostThe key component of the cost is package (bottle) and the operation cost (ie. total product cost=material +operation). We have two options (in-house making vs. buying from supplier) as followed: (Capital investment⏹Communication (TV Commercial)Marketing colleague is considering two spending model: a) Sustain model, Y1 $400 Thousand; b) Heavy Up model, Y1 double sustain model spending. This generates +1% volume share on top of target share year on year.(Assume same TVC spending % of revenue across years).⏹Others Assumptions•Other Operating Expense (people cost etc): 10% of revenue;•Cash-flow: For simplicity, only consider capital investment depreciation add-back (5 YR asset life), do not count any working capital impact;•Income Tax: 15%•Discount rate: 8% (Country Cost of Capital)Case 4—Chapter 9 Allied Food Products Case StudyAfter seeing Snapple’s success with noncola soft drinks and learning of Coke’s and Pepsi’s interest, Allied Food Products has decided to consider an expansion of its own in the fruit juice business. The product being considered is fresh lemon juice. Assume that you were recently hired as assistant to the Director of Capital Budgeting, and you must evaluate the new project.The lemon juice would be produced in an unused building adjacent to Allied’s Fort Myers plant; Allied owns the building, which is fully depreciated. The required equipment would cost $200,000, plus an additional $40,000 for shipping and installation. In addition, inventories would rise by $25,000, while accounts payable would go up by $5,000. All of these costs would be incurred at t = 0. By a special ruling, the machinery could be depreciated under the MACRS system as 3-year property. The applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent.The project is expected to operate for 4 years, at which time it will be terminated. The cash inflows are assumed to begin 1 year after the project is undertaken, or at t = 1, and to continue out to t = 4. At the end of the project’s life (t = 4), the equipment is expected to have a salvage value of $25,000.Unit sales are expected to total 100,000 cans per year, and the expected sales price is $2.00 per can. Cash operating costs for the project (total operating costs less depreciation) are expected to total 60 percent of dollar sales. Allied’s tax rate is 40 percent, and its weighted average cost of capital is 10 percent. Tentatively, the lemon juice project is assumed to be of e qual risk to Allied’s other assets.You have been asked to evaluate the project and to make a recommendation as to whether it should be accepted or rejected. To guide you in your analysis, your boss gave you the following set of questions.1.Assume there was no alternative use for the building over the next 4 years. Nowcalculate the project’s NPV, IRR, MIRR, and regular payback. Do these indicators suggest that the project should be accepted?2.Discuss how one would perform a sensitivity analysis on the unit sales, salvage value, andcost of capital for the project. Assume that each of these variables deviates from its base-case, or expected, value by plus and minus 10, 20, and 30 percent. Explain how you would calculate the NPV, IRR, MIRR, and payback for each case.Assume that you are confident about the estimates of all the variables that affect the cash flows except unit sales. If product acceptance is poor, sales would be only 75,000 units a year, while a strong consumer response would produce sales of 125,000 units. In either case, cash costs would still amount to 60 percent of revenues. You believe that there is a 25 percent chance of poor acceptance, a 25 percent chance of excellent acceptance, and a 50 percent chance of average acceptance (the base case). Use the worst-, most likely (or base), andbest-case NPVs, with their probabilities of occurrence, to find the project's expected NPV, standard deviation, and coefficient of variation.Case 5 – Chapter 10- Leverage1. Operating Leverage ExampleQuestions ：1. Calculate the total fixed costs, variable costs per unit and sales price2. At what sales level, in units, do both firms earn the same operating profit?3. Which firm has the higher business risk? Why?2.Financial Leverage Example--Campus DeliAssume that you have just been hired as business manager of Campus Deli (CD), which is located adjacent to the campus. Sales were $1,100,000 last year; variable costs were 60 percent of sales; and fixed costs were $40,000. Therefore, EBIT totaled $400,000. Because the university's enrollment is capped, EBIT is expected to be constant over time. Since no expansion capital is required, CD pays out all earnings as dividends. Assets are $2 million, and 80,000 shares are outstanding. The management group owns about 50 percent of the stock, which is traded in the over-the-counter market.CD currently has no debt - it is an all-equity firm - and its 80,000 shares outstanding sell at a price of $25 per share, which is also the book value. The firm's federal-plus-state tax rate is 40 percent. On the basis of statements made in your finance text, you believe that CD's shareholders would be better off if some debt financing were used. When you suggested this toyour new boss, she encouraged you to pursue the idea, but to provide support for the suggestion.In today's market, the risk-free rate, k rf , is 6 percent and the market risk premium, k M - k RF , is 6 percent. CD's unlevered beta, βu , is 1.0. Since CD currently has no debt, its cost of equity (and WACC) is 12 percent.If the firm were recapitalized, debt would be issued, and the borrowed funds would be used to repurchase stock. Stockholders, in turn, would use funds provided by the repurchase to buy equities in other fast-food companies similar to CD. You plan to complete your report by asking and then answering the following questions.Questions：1. To develop an example which can be presented to CD’s management as an illustration, consider two hypothetical firms, Firm U, with zero debt financing, and Firm L, with $10,000 of 12 percent debt. Both firms have $20,000 in total assets and a 40 percent federal-plus-state tax rate, and they have the following EBIT probability distribution for next year:Probability EBIT0.25 $2,0000.50 $3,0000.25 $4,000(1)Complete the partial income statements and the firms' ratios(2)Be prepared to discuss each entry in the table and to explain how this example illustrates theimpact of financial leverage on expected rate of return and risk.FIRM U FIRM LASSETS $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 EQUITY $20,000 $20,000 $20,000 $10,000 $10,000 $10,000 PROBABILITY 0.25 0.50 0.25 0.25 0.50 0.25 SALES $6,000 $9,000 $12,000 $6,000 $9,000 $12,000 OPER. COSTS 4,000 6,000 8,000 4,000 6,000 8,000 EBIT $2,000 $3,000 $4,000 $2,000 $3,000 $4,000 INTERESTEXPENSE 0 0 0 1,200 1,200 EBT $2,000 $3,000 $4,000 $800 $2,800 TAXES (40%) 800 1,200 1,600 320 1,120 NET INCOME $1,200 $1,800 $2,400 $480 $1,680 BEP 10.0% 15.0% 20.0% 10.0% 20.0% ROE 6.0% 9.0% 12.0% 4.8% 16.8% TIE ∞ ∞ ∞ 1.7 3.3E(BEP) 15.0%E(ROE) 9.0% 10.8%E(TIE) ∞ 2.5SD(BEP) 3.5% 3.5%SD(ROE) 2.1% 4.2%SD(TIE) ∞ 0.62．After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels :Amount D / A D / E Bond Before-TaxBorrowed Ratio Ratio Rating k d$0 0.0000 0.0000 -- --$250,000 0.1250 0.1429 AA 8.0%$500,000 0.2500 0.3333 AA 9.0%$750,000 0.3750 0.6000 BBB 11.5%$1,000,000 0.5000 1.0000 BB 14.0%Now consider the optimal capital structure for CD.Case 6 –chapter 13 Coleman TechnologiesColeman Technologies is considering a major expansion program that has been proposed by the company’s information technology group. Before proceeding with the expansion, the company needs to develop an estimate of its cost of capital. Assume that you are an assistant to Jerry Lehman, the financial vice-president. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes may be relevant to your task:(1) The firm’s tax rate is 40 per cent.(2) The current price of Coleman’s 12 percent coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.(3) The current price of the firm’s 10 percent, $100 par value, quarterly dividend, perpetualpreferred stock is $111.10.(4) Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5 percent in the foreseeable future. Coleman’s beta is 1.2, the yield on T-bonds is 7 percent, and the market risk premium is estimated to be 6 percent. For the bond-yield-plus-risk-premium approach, the firm uses a 4 percentage point risk premium.(5) Coleman’s target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent common equity.To structure the task somewhat, Lehman has asked you to answer the following questions.1.What is Coleman’s overall, or weighted average, cost of capital (WACC)? Ignore flotationcosts.2.What factors influence Coleman's composite WACC?3.Should the company use the composite WACC as the hurdle rate for each of its projects?4.Coleman is interested in establishing a new division, which will focus primarily on developingnew Internet-based projects. In trying to determine the cost of capital for this new division, you discover that stand-alone firms involved in similar projects have on average the followingcharacteristics:(1) Their capital structure is 40 percent debt and 60 percent common equity.(2) Their cost of debt is typically 12 percent.(3) The beta is 1.7.Given this information, what would your estimate be for the division’s cost of capital? Note that Coleman uses the CAPM to calculate the division's cost of capital.。