Deloitte – Trueblood Case Study Case 10-9 Institutional Investor Company (IIC) (Investment Existence & Valuation) I. Statement on Facts: Case 10-9 * Institutional Investor Company (IIC) is a for-profit conglomerate consisting of multiple business lines operating in a variety of industries throughout the United States and is currently being audited under the audit standards established by the AICPA. * Highly profitable * Manages an investment portfolio of approximately $500 million (15% of IIC’s consolidated total assets) that is used to fund operations as needed. * Management, unsatisfied with the historical returns on IIC’s investment portfolio is looking to diversify by investing in alternative investments, which seem to promise higher returns (i.e. Hedge funds, real estate funds, private equity funds, etc.).
The long term debt is $11,082 million. c. Calculate the weighted average cost of capital (WACC) for Delta. Using a WACC calculator from www.miniwebtool.com, the calculated WACC is 6.90%. This is the minimum acceptable return rate that the company must pay to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. Delta has a high cost of equity ratio compared to its long term debt cost ratio.
Finally, recommendations on alternative measures have been discussed. Competitiveness analysis Zeus’s main competitors are those top performed mutual funds in particular market areas. Zeus’s clients are high net wealth individuals and foundation-orientated institutional investors. Unlike most of its competitors Zeus has been maintained a long-term strategic asset allocation objective. Zeus has two main advantages compare to its competitors.
Margin of Safety (DOLLARS) Budgeted – break even = 100,000-62500= 37500 (Percentage) 37.500/100.000= 37.5% (Units) 37500/250= 150 3.Compute the company’s margin of safety in units assuming the proposal is accepted. Margin of Safety (Dollars) 137500-58929= 78571 (Units) 78571/275= 286 4. Compute the increase or decrease in profit assuming the proposal is accepted, show the contribution Income Statement for current and proposed. Present Proposed Sales 100,000 137500 Variable expense 64000 80000 CM 36000 57500 Fixed cost 22500 244750 Net income 13500 32750 difference: 19250 4a. What is the operating leverage for the current and proposed?
Once again if the president’s bonus is based off of net income, this situation is the most favorable for a high paying bonus and encourages stockpiling inventory to inflate net income. b. If the sales outlook for the coming three years were to increase to 30,000,000, the newly implemented system would prove valuable to B.E. Company. If production is kept the same, the company is predicted to sell every unit produced which would avoid a stockpile of inventory and also safeguarding an extra 5,000,000 units in ending inventory in case sales go above 30,000,000.
Executive Summary To: Robert Giel From: Nitin Thakurani Date: April 3, 2008 Re: Credit Rating for West 49 Inc. Mr. Giel, Liquidity 1. Low Current Ratio of 1.24 and Acid Test Ratio of 31 cents $1. 2. Very High Accounts Receivable Turnover which is beneficial to the company. 3.
Over the last 2 years, Apache had made unusual number of acquisition in 2000 and financed $3.7B worth of acquisitions. The firm’s adopted the approach of increasing production through acquisitions when oil price are high via hedging, financial flexibility (credit line, relatively low debt ratio). Risks that Apache is currently exposed to include: Systematic Risk in their operations – Insecurity arising from daily operating activities, such as product delivery and oil drilling; finances activities (bonds and shares issuance). Systemic Risk of the oil & gas industry – field age (maturity vs virgin fields), technological
Assignment 12 Metapath Software: September 1997 1. Analyze Metapath’s capital structure, in particular the various forms and prices of preferred stock from the multiple previous rounds of financing. How has this capital structure affected the offer from Robertson & Stephens? The latest round of financing (tranche D) has received the best terms of the current four tranches because of the amount of money which was raised. RSC wants to make sure they get paid in the event of a sale or liquidation of the company.
Swenson has referred to actual cumulative long-run returns of stocks vs. US treasury bonds and Treasury bills to demonstrate this. The 2006 returns and the 10yr annualized return structure of Yale has shown that this principle works indeed. Second, holding a diversified portfolio mitigates risks. The inclusion of emerging markets in their foreign equities provides diversification, along with potential for high returns (due to the rapid growth in these markets).
ECON 335 – International Economy Dr. Huiran Rachel Pan Homework 2_Answer(Chapters 4-7) Chapter 4 (End of Chapter Questions) 3. Consider the following data on the factor endowments of two countries, A and B: Countries A B 45 20 Labor Force (millions of workers) Capital Stock (thousands of machines) 15 10 (a) Which country is relatively capital abundant? (b) Which country is relatively labor abundant? (c) Suppose that good S is capital intensive relative to good T. Which country will have comparative advantage in the production of S? Explain.