Considering a capital investments
You will assume that you still work as a financial analyst for Aero Faust, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a minimum rate of return of 12% (Task 4) and (2) the firms cost of capital (Task 5).
|PART II||Here is how you will be graded:||Possible|
|Task 4:||Assessing loan options|
|Step 1: Calculate IRR||10|
|Step 2: Calculate NPV||10|
|Step 3: Decision||5|
|Step 4: Explain how depreciation will affect the NPV||5|
|Step 5: Explain and Provide examples of each of the following:|
|Step 6: Explain how you would conduct a scenario and sensitivity analysis||10|
|Task 5:||Cost of Capital|
|Step 1: Cost of Debt|
|A. What is the Briggs & Stratton coupon rate?||5|
|B. What is the Briggs & Stratton YTM?||5|
|C. Provide a screen shot of competitor’s bond analysis page||5|
|D. What is the YTM of the competitors bond?||5|
|E. Calculate the ATK||5|
|F. Why use the YTM and not the coupon rate||5|
|Step 2: Cost of Common Equity|
|A. Screen Shot||5|
|B. Compute the cost of common equity using the CAPM||10|
|C. Compare/contrast the CAPM with the dividend growth model (DGM)||10|
|Step 3: Cost of Preferred Equity|
|A. Compute the cost of Preferred Equity using the DGM with no growth||10|
|B. Other methods to compute the Cost of Preferred Equity||5|
|Step 4: Calculate WACC||10|
|Step 5: Should the firm use this WACC for all projects||5|
|Step 6: Re-compute the NPV|
|A. Re-compute the NPV of the project above using the new WACC.||5|
|B. Would you change your earlier recommendation? Explain.||5|
|Late Penalty -15 points|
As with all written work, if you quote other works, you must provide a proper APA reference citation and at least 80% of each response must be your own, original commentary. Use quoted material to SUPPORT your opinion, not to BE your opinion.
Task 4. Capital Budgeting for a New Machine
A few months have now passed and Aero Faust, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows:
Year 1 $1,100,000
Year 2 $1,200,000
Year 3 $1,300,000
Year 4 $1,400,000
Year 5 $1,500,000
Year 6 $1,600,000
You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 12% and the initial cost of the machine is $5,500,000.
1.What is the projects IRR?Show your calculations and display your answer to the nearestTWO decimal places(like this: 12.34%). (10 pts)
2.What is the projects NPV? Show your calculations and display your answer to the nearest whole dollar (Withno decimals– like this: $12). (10 pts)
3.Should the company accept this project and why (or why not)? (5 pts)
4.Explain how depreciation will affect the present value of the project. (5 pts)
5.Explain each of the following as and provide examples as they might relate to this proposal. (5 pts each)
6.What is a sensitivity analysis and how might it help identify project-specific risks and market risks related to this project? (10 pts)
Task 5: Cost of Capital
Aero Faust, Inc. is now considering that the appropriate discount rate for the new machine should be the cost of capital and would like to determine it. You will assist in the process of obtaining this rate.
1.Compute the cost of debt. Assume Aero Faust, Inc. is considering issuing new bonds. Select current bonds from one of its main competitors, Raytheon, Boeing, Lockheed Martin, or the Northrop Grumman Corporation as a benchmark return for the new bonds.
You may use a number of sources to get bond information about a comparable firm to use as a benchmark. We recommend Morningstar. But Morningstar is a little difficult to navigate so you will find it much easier to search directly from your search engine (Google or Yahoo) for the desired firms bonds and selecting Morningstar from the list of web pages. (For example, search for Boeing bonds Morningstar.)
Here is a sample of the correct page for an unrelated company, Briggs & Stratton (BBG), manufacturer of Simplicity garden tractors.
Scroll down to see a list of bonds issued by your benchmark company.
Briggs has only issued one bond which matures in 2020. The aerospace firm you select will have many.Select the one with the longest maturity date. You may assume that new bonds issued by Aero Faust, Inc. are of similar risk and will require the same return.
a.In the Briggs & Stratton example above, what is the coupon rate? (5 pts)
b.What is Briggs & Stratton Yield to Maturity (YTM)? (5 pts)
c.Provide a screen shot of the competitors bond page you selected. (5 pts)
d.What is the YTM of the competitors bond you have selected? (5 pts).
e.Assume that the competitor you selected has a marginal tax rate of 33%. Calculate the after-tax cost of debt. Show your calculations and display your answer to the nearest TWO decimal places (like this: 12.34%). (5 pts)
f.Explain why you should use the YTM and not the coupon rate as the required return for debt. (5 pts)
2.The cost of common equity may be derived using the CAPM model. For beta, use theaverage beta of three competitors. You may obtain the betas from LexisNexis (in the course Home tab, select Student Resources, then select Library, Databases, then LexisNexis.) You can also get the information you need from Google Finance or Yahoo Finance.
a.Provide a screen shot of the benchmark competitor you selected. (5 pts)
b.Assume the risk free rate to be 2.5% and the average market return to be 6.5%. Using the CAPM model, what is the cost of common equity? show your calculations and display your answer to the nearest TWO decimal places (like this: 12.34%). (10 pts)
c.Explain the advantages and disadvantages to use the CAPM model as the method to compute the cost of common equity. Compare and contrast this method with the dividend growth model approach. (10 pts)
3.One method to calculate the required rate of return on preferred stock is to use the Gordon Model, also called the Dividend Growth Model. But with preferred stock, dividends are always the same and never change. The growth factor is, therefore, zero.
a.Using the dividend growth model with zero growth, assuming the dividend paid on preferred stock is $4.50 and the current value of the stock is $80 per share; compute the cost of preferred equity. Show your calculations and display your answer to the nearest TWO decimal places (like this: 12.34%). (10 pts)
b.What other means could we use to compute the cost of preferred equity? Explain. (5 pts)
4.Assuming that the market value weights of these capital sources are 25% bonds, 45% common equity and 30% preferred equity, what is the weighted cost of capital of the firm? Show your calculations and display your answer to the nearest TWO decimal places (like this: 12.34%). (10 pts)
5.Should the firm use this WACC for all projects? Explain and provide examples as appropriate. (5 pts)
6.Re-compute the net present value of the project using the cost of capital you found in Task 5 Question 4 above. Show your calculations. Do you still believe that your earlier recommendation for accepting or rejecting the project was appropriate? Why or why not? (10 pts)
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
- Plagiarism free papers
- Timely delivery
- Any deadline
- Skilled, Experienced Native English Writers
- Subject-relevant academic writer
- Adherence to paper instructions
- Ability to tackle bulk assignments
- Reasonable prices
- 24/7 Customer Support
- Get superb grades consistently
Online Academic Help With Different Subjects
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
What discipline/subjects do you deal in?
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Are your writers competent enough to handle my paper?
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
What if I don’t like the paper?
There is a very low likelihood that you won’t like the paper.
- When assigning your order, we match the paper’s discipline with the writer’s field/specialization. Since all our writers are graduates, we match the paper’s subject with the field the writer studied. For instance, if it’s a nursing paper, only a nursing graduate and writer will handle it. Furthermore, all our writers have academic writing experience and top-notch research skills.
- We have a quality assurance that reviews the paper before it gets to you. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.
In the event that you don’t like your paper:
- The writer will revise the paper up to your pleasing. You have unlimited revisions. You simply need to highlight what specifically you don’t like about the paper, and the writer will make the amendments. The paper will be revised until you are satisfied. Revisions are free of charge
- We will have a different writer write the paper from scratch.
- Last resort, if the above does not work, we will refund your money.
Will the professor find out I didn’t write the paper myself?
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
What if the paper is plagiarized?
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
When will I get my paper?
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
Will anyone find out that I used your services?
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
How our Assignment Help Service Works
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET A PERFECT SCORE!!!