# MBA- Fin Management

(20 pts) 1. As a financial analyst, you have been asked to analyze certain

aspects of working capital management for The Wendy’s Company (WEN); McDonald’s

Corporation (MCD); and Chipotle Mexican Grill, Inc. (CMG). In your analysis you should consider the

following:

·

Cash conversation cycle.

·

Liquidity.

·

Net working capital.

·

Short-term financing versus long-term

financing.

Provide analysis for the computations.

(15

pts) 2. Explain what you believe is

the dividend policy for The Wendy’s Company (WEN); McDonald’s Corporation

(MCD); and Chipotle Mexican Grill, Inc. (CMG)

In answering this question, discuss the concepts that were examined in

class. The points earned depend on the depth of the discussion along with the

supporting computations.

(10 pts) 3. You are considering a radical change to your life after

winning $10,000,000 after taxes in the Florida State Lottery. You have decided to move to China and you are

considering the purchase of a Chipotle Mexican Grill, Inc. franchise. Explain how you would decide whether or not

you should open the franchise. Your discussion should be in the context of

this course. No computations are

necessary.

(7 pts) 4.

Rho Corporation has 200,000 shares outstanding and plans to pay $1.50 in

dividends next year. Rho has a capital budget of $1,000,000 for next

year and plans

to maintain its present

debt ratio of 40 percent. If earnings are expected to be $4.50

per share, how much external equity must Rho raise?

(15

pts) 5. Sigma Corporation is

considering whether to pursue an aggressive or conservative current asset

policy, as well as an aggressive or conservative financing policy. The following information is available:

·

Annual sales are $800,000.

·

Fixed assets are $300,000.

·

The debt ratio is 50 percent.

·

EBIT is $80,000.

·

Tax rate is 40 percent.

·

With an aggressive policy, current

assets will be 20 percent of sales; with a conservative policy, current assets

will be 35 percent of sales.

·

With an aggressive financing policy,

short-term debt will be 75 percent of the total debt; with a conservative

financing policy, short-term debt will be 30 percent of the total debt.

·

Interest rate for short-term debt is 6

percent. Interest rate for long-term

debt is 11 percent.

Determine

the return on equity for the aggressive approach and for the conservative

approach. Discuss which approach you

would choose.

(20

pts) 6. Gamma

Corporation currently processes seafood with a machine it purchased several

years ago. The machine, which originally

cost $750,000, currently has a book value of $250,000. Gamma is considering replacing the machine

with a newer, more efficient one. The

new machine will cost $900,000 and will require an additional $100,000 for

delivery and installation. The new

machine will also require Gamma to increase its investment in receivables and

inventory by $100,000. The new machine

will be depreciated on a straight-line basis over five years to a zero

balance. Gamma expects to sell the

existing machine for $300,000. Gamma’s

marginal tax rate is 40 percent and the required rate of return for Gamma is 10

percent.

If Gamma purchases the

new machine, annual revenues are expected to increase by $125,000 and annual

operating costs (exclusive of depreciation) are expected to decrease by

$30,000. Annual revenue and operating

costs are expected to remain constant at this new level over the five-year life

of the project. After five years, the

new machine will be completely depreciated and is expected to be sold for

$50,000. (Assume that the existing unit

is being depreciated at a rate of $50,000 per year.)

Required:

a)

Determine the payback period for this

project.

b)

Using net present value recommend whether or not Gamma should

purchase the new machine.

c)

Explain what

the net present value represents.

d)

Explain

whether the internal rate of return is more, less or the same as the required

rate of return. No computations are necessary.

(10 pts) 7. The

Kappa Company is in the volatile garment business. The firm has annual revenues of $250 million

and operates with a 30% gross margin on sales.

Bad debt losses average 3% of revenues.

Kappa is contemplating an easing of its credit policy in an attempt to

increase sales. The loosening would

involve accepting a lower-quality customer for credit sales. It is estimated that sales could be increased

by $20 million a year in this manner with an increase in inventory investment

of $2,000,000. Opportunity costs for inventory is 15%; however, the collections

department estimates that bad debt losses on the new business would run four

times the normal level, and that internal collection efforts would cost an

additional $1 million a year.

Show

computations to explain if the change in policy should be made.

(18 pts) 8. The

Zeta Manufacturing Company is considering investing in a factory in Vietnam.

The CEO is concerned about making such a large commitment of money for this

factory. This investment will require $70 million, which is roughly two-thirds

the size of the company today.

The CEO has launched the firm’s first-ever

cost of capital estimation, as an integral part of this analysis Zeta’s current

balance sheet reflects the following:

Bonds (9%, $1,000 par,

20-year maturity) 27% of

capital structure

Preferred stock

($50 par, $2.00 dividend) 9% of capital structure

Common stock

64% of capital structure

The firm paid dividends to its common stockholders

of $1.28 per share last year, and the projected growth rate is 9% per year for

the indefinite future. Zeta’s current common stock price is $25 per share. In

addition, the firm’s bonds have an Baa rating. These bonds are currently

yielding 11%. The current market price for the preferred stock is $15 per

share. The plant is expected to have an IRR of 16 percent. Zeta’s tax rate is

38 percent.

Required:

a)

Show

computationsto determine the weighted average cost of capital.

b)

Explainif they

should purchase the plant.

(10 pts) 9. The

Delta Company is evaluating whether a lockbox it is currently using is worth

keeping. Management estimates that the lockbox reduces the mail float by 1.8

days and the processing by half a day. The remittances average $50,000 per day,

with the average check amount being $500. The bank charges 34 cents per check

processed. Assume that there are 270 business days in a year and that the

firm’s opportunity cost for these funds is 6 percent. Should the firm continue

to use the lockbox? Show computations.

**30 %**discount on an order above

**$ 100**

Use the following coupon code:

RESEARCH