29 Dec What is the IRR for each project?

Instructions

The Allied Group has acquired Kramer Industries and is now considering additional investments. They have determined that there is a firm that is a good fit for their portfolio, the Kramer firm of Montana. The firm was established in 1990 and has the following historical returns:

Kramer Industries

Year

Earnings

1990

(8% Loss)

1995

23%

2000

26%

2005

31%

2010

18%

Address all of the following questions:

What was the average return for the stock over the period of 1990 through 2010?

What was the standard deviation for the stock over this period?

Assume that you currently have a portfolio that returns 19.5%. If you add this stock to the current portfolio, what would happen to the average return on the portfolio?

Should Allied invest in the stock? Justify your response.

Submission Details:

Submit your 3 to 4 page paper in a Microsoft Word document, using APA style.

Name your document MBA5009_W1_LastName_FirstName.doc.

Submit your assignment to the Submissions Area by the due date assigned.

Week 2 Project

Instructions

Wal-Mart is one of the most dynamic companies in our economy. However, the company is being challenged in the market by new competitors. For the Wal-Mart Corporation, go online and find the annual report for the most recent year available.

Deliverables:

Based on the obtained annual report, complete the following table:

Ratio

Formula

Results

Operating Profit Margin After Taxes

Gross Profit Margin

Average Collection Period

Total Asset Turnover

Fixed Asset Turnover

Inventory Turnover

Debt to Total Assets

Times Interest Earned

Based the information in your table and in the annual report, evaluate the status of Wal-Mart on each of these ratios.

What would you conclude based on the information above in terms of the overall condition of Wal-Mart? What recommendations would you make?

Submission Details:

Submit your assignment in a Microsoft Excel spreadsheet. Cite any references in APA style. Show all your calculations

Name your document MBA5009_W1_LastName_FirstInitial

By the due date assigned, submit the completed assignment to the Submissions Area.

Week 3 Project

Instructions

Bob and Carol are planning for the birth of their first child exactly four years from today. They are now ready to start their savings plan for the big event. The current hospital cost for having a healthy baby at the local hospital is $6500 after all insurance payments. Pre-natal care for the immediate 12-month period prior to having the baby amounts to $2000 out-of-pocket costs. Carol’s best friend is planning a baby shower, so only a crib, a baby carrier, and other miscellaneous items will be needed, which all cost $1,200 today. However, these items will be purchased and paid for the day of the child’s birth, and the items are expected to increase in costs by 10% each year over the next four years due to inflation.

Bob and Carol now have $500 in cash that they plan to put in the bank in order to cover the all the new costs. Also, Uncle Ted has promised to contribute $1000 at the end of year two, as a present to Bob and Carol for baby expenses.

Currently, Bob and Carol can earn 6% compounded annually on this money. In order to be able to pay cash for all these expenses on the day the baby is born, how much will Bob and Carol have to save, assuming the baby is born exactly four years from today

Questions:

Draw the timeline that illustrates the timing of all the events of the situation described above.

How much will Bob and Carol need to have in the bank on the day the baby is born in order to achieve all their goals?

What amount needs to be saved at the end of each year in order for Bob and Carol to reach their financial goals?

Submission Details:

Submit your 2 to 4 page paper in a Microsoft Word document, using APA style.

Name your Microsoft Word document MBA5009_W3_LastName_FirstName.doc.

Submit to the Submissions Area by the due date assigned.

Week 4 Project

Instructions

The Allied Group intends to expand the company’s operation by making significant investments in several opportunities available to the group. Accordingly, the group has identified a need for additional financing in preferred and new common stock and new bond issues. The (Krf) risk-free rate for the company is 7%, and the appropriate tax rate is 40%. Also, the beta coefficient for the company is 1.3 and the market risk premium (Km) is 12%.

New Debt (Kd)

The company has been advised that new bonds can be sold on the market at par ($1000) with an annual coupon of 8%, for 30 years.

New Common Stock

Market analysis has determined that given the positive history of the firm, new common stock can be sold at $29 per share, with the last dividend being paid of $2.25 per share. The growth rate on any new delete the words highlighted in yellow common stock has been estimated at a constant rate of 15% per year for the next 3 years.

Preferred Stock

New Preferred Stock can be issued with an annual dividend of 10% of par and is paid annually and currently would sell for $90 per share.

Tasks:

Using the Capital Asset Pricing Model (CAPM), discuss and calculate the cost of new common stock (Ks).

What would the dividend yield as a percentage (i.e., per dividend payment divided by the book value of a share of stock) today and a year from now if the dividend growth rate is 12%?

What is the after-tax cost as a percentage (e.g., interest rate) of new debt today?

What are your recommendations for raising capital based on your answers to the above questions plus considering other factors (e.g., current and potential changes in the economy locally, regionally, nationally and worldwide, changes in the demand and/or supply plus cost of materials, skilled labor, management and/or leadership, changes in interest, tax, inflation and/or supply of investment capital)?

Submission Details:

Submit your 3 to 4 page paper in Microsoft Word, using APA style.

Name your paper: MBA5009_W4_ LastName_FirstInitial.doc.

Submit to the Submissions Area by the due date assigned.

Week 5 Project

Instructions

The Allied Group is considering two investments. The first investment involves a packaging machine, which can be used to package garments for shipping orders to customers. The second possible investment would be a molding machine that would be used to mold the mannequin parts.

The first possible investment is the packaging machine, which will cost $14,000. The second investment, the molding machine, would cost $12,000. The expected cash flows for the two projects are given below and the cost of capital to the firm is 15%. Both machines will be unusable after five years and have no salvage value.

The net cash flows for the two possible projects are given in the following table:

Year Packaging Machine Molding Machine

0 ($14000) ($12,000)

1 4100 3200

2 3300 2800

3 2900 2800

4 2200 2200

5 1200 2200

Address all of the following questions in a brief but thorough manner.

What is each project’s payback period? Provide a detailed explanation of how you calculated the payback period for each.

What is the NPV for each project? Provide a detailed explanation of how you calculated the payback period for each.

What is the IRR for each project? Provide a detailed explanation of how you calculated the internal rate of return (IRR) for each.

If both of the projects can be selected, then should both be selected? Why or why not? Explain why or why not.If the two projects are mutually exclusive, which project, if any, should be selected? Explain why.

Submission Details:

Submit your 4 to 5 page Microsoft Word document, using APA style.

Name your report: MBA5009_W5_ LastName_FirstInitial.doc.

Submit to the Submissions Area by the due date assigned.