Next, each item commitment quantity was calculated using its contribution margin and its total contribution in dollar to the revenue of the company. For e.g. if an item had a margin of $15 if sold, and $5 loss if not sold, the commitment value would be 0.75. Hence the optimal stock to keep would be three quarters of the probability of demand. If for instance, the corresponding error for 0.75 is 1.3, the optimal stock to keep for that item would be 1.3 * frozen forecast.
* Risk premium: Arithmetic mean is often used for one-year period valuation, while geometric mean is better for long-term period estimated expected returns. * Beta: Cohen took the average value of historical betas to measure the risk. From my perspective, however, the most recent beta is more representative than the average beta in terms of reflecting future risk. Question 2: What is your estimate of the equity cost of capital? Based on the analysis in question 1, I estimate the cost of equity as following: 9.81% =5.74% + 0.69 * (5.9%) Question 3: How, if at all, would you change Cohen’s debt cost of capital calculation?
1. Budgets Analyzing and Appropriate Decisions 1.1 Flexible Budgets Based on the figures of assumed monthly budgets for sales and production of the company in 2010, we can calculate figures for the year of 2010: With output level = 100% Production : 1,000 x 12 = 12,000 products Sales : 12,000 x 20.0 = 240,000 (monetary figures in $’000) Direct production costs : 12,000 x 7.5 = 90,000 Variable costs : 12,000 x 2.5 = 30,000 Costs of sales : Direct costs + Variable costs = 120,000 Semi-variable portion : 12,000 x 5.0 = 60,000 Fixed portion : 1,500 x 12 = 18,000 Delivery costs : Semi-variable portion + Fixed portion = 78,000 Staff costs (fixed) : 2,000 x 12 = 24,000 Rental (fixed) : 500 x 12 = 6,000 With
c. What would be the effect on the optimal solution if the cost of operating mill 1 increased from $6,000 to $7,500 per day? d. What would be the effect on the optimal solution obtained in part c, if the company could supply only 10 tons of high-grade aluminum? e. In the original model (the one you formulated in part a): what is the shadow price for each of the three aluminum grades? f. In the original model: what is the sensitivity range for the objective function coefficients? Question 2 (16 points) Gilbert Moss and Angela Pasaic spent several summers during their college years working at archeological sites.
Chrysler like other automobile manufacturers experienced a slump in car sales until the Obama Administration revived the American automobile industry. Today, Chrysler is bobbling in sales like never before. A firm’s success is dependent on the type of strategy it adopts and this is done through policies, procedures, and approaches to the business strategy. Target strategy is one of those strategies that businesses could implement in order to enhance their competitive edge. According to Blocher, Stout, Juras, and Cokins, target costing is the desired cost for a product to stay competitive while earning a desired profit (Blocher, Stout, Juras, Cokins, 2013).
(2) What would be your estimate of intrinsic value if you believed that the stock was riskier, with a beta of 1.7? [40%] (b) CBD stock has an expected ROE of 15% per year, expected earnings per share of $6, and expected dividend of $4 per share. The beta of CBD stock is 1.3, the risk-free rate is 2%, and the market risk premium is 7%. What are its expected growth rate, its price, and its P/E ratio? [40%] (c) Discuss why P/E multiples are in general negatively correlated with risk and positively correlated with growth.
Eisenhower communications is trying to estimate the first-year net operating cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenue $10 million Operating costs (excluding depreciation) $ 7 million Depreciation $ 2 million Interest expense $ 2 million The company has a 40 percent tax rate, and its WACC is 10 percent a. What is the project’s operating cash flow for the first year? b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year.
If a new issue is offered, flotation costs will be 12% of the current price of $150. e. A bond selling to yield 13% after flotation costs, but prior to adjusting for the marginal corporate tax rate of 34%. In other words, 13% is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest). 11- 2A. (Individual or Component Costs of Capital) Compute the cost for the following sources of financing: a.
The Effects of Outsourcing on the Economy In recent years, outsourcing has become an increasingly popular alternative for some of the largest corporations in North America, who are looking for inexpensive ways of lowering overall costs. Outsourcing, which is the relocation of jobs to other foreign countries, has become a controversial new way of doing business. In considering the pros and cons of outsourcing, we have to ask some key questions: Who is benefiting for outsourcing? What types of jobs are being outsourced? What effect does outsourcing have on Americans?
Using the following calculation, we find: z= x- μ σ -1.96 = 10,000 – 20,000 σ σ=5102 Standard deviation σ = 5,102 μ = 20,000 mean 2. Stock outs were calculated by the four management numbers. Equation is: z = (x – μ)/ σ 15,000: Z = (15,000-20,000)/5102 z = -0.98 Then, reference the cumulative probabilities for standard deviation table in the beginning of the book to identify what -0.98 represents, which is .1635. Since stock outs are any quantity greater than what management suggested, they need to be subtracted from 1. 1 - .1635 = .8365 which = 83.65% Same logic/steps for the rest of the values: 18,000 24,000 28,000 Z = (18,000-20,000)/5102 z=(24,000-20,000)/5102 z=(28,000-20,000)/5102 z = -.39 z=.78 z= 1.57 1 - .3483 = .6517 1 - .7823 = .2177 1 –.9418 = .0582 which = 65.17% which = 21.77% which = 5.82% 3.