The project requires $267.9 million to fund six locomotives and seven train sets and have three options to acquire the equipment: 1) issue debt to finance the purchase, 2) lease the equipment using a leveraged-lease structure, or 3) use federal grant monies. A discounted cash flow analysis on the three options has been performed to determine the most cost-efficient option. We will assume two potential scenarios when analyzing the options: 0% tax rate (operating at a loss) and 38% tax rate (operating with a gain). Discussion: Amtrak could issue bonds with a 20-year term at 6.75% per annum to purchase the equipment. They would make semiannual payments of $12.303 million and can sell the equipment at the end of its 25-year useful life at $40.185 million.
Alternatively, if Cypress were to sell its share in Sun Power, it is worth $3,862,600,000 equivalent to $25.29 per share of Cypress in cash. Management may distribute this as a special dividend or capital reduction. The equity of Cypress net of Sun Power is $856,342,000 (from Balance Sheet) or $5.60/Cypress share. However, the market price of Cypress share is $27.37/share comprising $25.29 worth attributed it Cypress’s ownership in Sun Power. This means that the market value Cypress at $2.08/per net of Sun Power.
When the amount goes over the fair value of the lease the amount should be documented as an asset. c. What expenses related to this lease will Lani incur during the first year of the lease, and how will they be determined? Lani will obtain interest which will equal the amount used benefits the lease which is multiplied by the liability. She will receive fees associated with the depreciation of the cost of capital towards the cost of assets. d. How should Lani report the lease transaction on its December 31, 2006, balance sheet?
In order to decide the best plan of financing this project, Amtrak and it’s advisor, Babcock & Brown Financial Corporation (BBFC) asked BNY Capital Funding LLC (BNYCF) to come up with lease-financing proposals. On April 30, 1999, Arlene Friner, the CFO of Amtrak presented these proposals for financing Acela to her Treasury team. A present value analysis is used to determine whether borrowing money, leasing the equipment, or relying on federal funding is the best option for financing the project. Discussion Acela is projected to produce $180 million in net revenue by 2002. This includes the purchase of 15 high-speed locomotives and 20 train sets of $750 million, of which Amtrak needs financing for six locomotives and seven train sets of $267.9 million.
Who stands to gain most if the development effort succeeds? Are Anacomp’s shareholders better off or worse off with this arrangement, relative to in-house development of the system? The agreement between Anacomp and RTS Associates involves Anacomp to develop the CIS system and RTS to pay a development fee. Upon completion of the development of the CIS system, Anacomp agreed to market CIS for five years on a commission basis, Anacomp also had the option to acquire all rights to the CIS system at the greater of its appraised fair market value or RTS’s investment plus a fixed profit. RTS had the right to extend Anacomp’s five-year marketing agreement an additional five years or to cancel it if Anacomp did not their best efforts to market CIS.
dividend paid by the stock and the appreciation of stock price since the investment was made. From the profitability point of view, factors such as dividend yield and stock appreciation over the last 5-yr period are used as the major decision making criteria to decide whether to invest in any of these two companies, if so, which one? Other financial data are used to verify the financial health of the two companies. The supporting financial data is equally important in the final decision since the profitability of a company can’t guarantee its long-term viability. Other financial data are used to verify
Also, there is a remaining 12.5 million that would have to be paid at the expiration of the bonds, but that could be paid off by issuing new bonds or additional equity at that time. . Introduction Continental Carriers Inc is a trucking company which focuses in carrying general commodities. From the start of its operation in 1952, the company manages within the district of the Pacific Coast and from Chicago to
After that, we will use a discount factor on these Free Cash Flows in order to find their Present Values. Using these Present Values of our Free Cash Flows, we will compute the Net Present Value and the Internal Rate of Return of the project. Finally, we will make some recommendations about the project. Now before we start our calculations, two comments need to be made: First, we will set up the timeline over 16 years (Year 0 to 15) as the main investment takes place in year 0, and the depreciation of the last investment ends in year 15. Indeed, the last investment is made in year 5 and therefore its depreciation ends in year 15.
Case 1: 4-1 Vershire Company 1. There are 6 steps in the budget process of Vershire Company which are: Step 1: Sales Budget is prepare in May which divided into plant, price, volume and product. In this step the Divisional General Manager will compile the sales budget which input is requested from the district sales managers and central market research staff. Step 2: In September, the Plant Manager is given sales budget which include gross profits, fixed expenses and pre-tax income. In this step plant manager also set budget standards for variable and fixed cost which from compilation of the industrial Engineering Department about the cost standards and cost reduction targets.
Now we are here to help her make a choice. I. B-S Model for option pricing Today is the final day for Sally to make a choice, we relies on the famous Black-Scholes Model to price the options in the compensation. Before pricing, we need to know the volatility and the continuous compounded interest rate. For interest rate, we regard the 5 years T-bill bond yields as the “risk-free” rate and assume Sally and other investors of Telstar are risk-neutral. 1+5*BEY5yr=exp5r, where BEY5yr is the annualized Treasury Bill’s bond equivalent yield and r is the continuous compounded interest rate we want to derive, which is 5.2627%.