Project: Finance for Managers
vemylami
Project4Workbook2212.xlsxInstructions
Instructions To complete this workbook, answer the questions on each worksheet.
Financing and Investing
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| 3 | Price | Percent Down | Amount Financed | ||||||||||||||||||
| 4 | Loan | N | I/Y | PV | PMT | ||||||||||||||||
| Loan A | |||||||||||||||||||||
| Loan B | |||||||||||||||||||||
| Loan C | |||||||||||||||||||||
| 5 | Loan | N | I/Y | PV | PMT | Total Paid | |||||||||||||||
| Loan A | |||||||||||||||||||||
| Loan B | |||||||||||||||||||||
| Loan C | |||||||||||||||||||||
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McCormick & Company is considering building a new factory in Largo, Maryland. James Francis, a landowner, is selling a 4.35-acre parcel of industrial zoned land with a listed sale price of $3,000,000.00 for the land. McCormick & Company is interested in the land and so is another manufacturing company. The competing manufacturing company has made an offer of $2,300,000.00 in cash and $300,000 each year for 15 years for the land. McCormick & Company knows it can make an offer to outbid the competitor to obtain the land. So, McCormick & Company decided to offer $4,242,000.00 in cash. Now, the land owner, James Francis, must make a decision between the two competing offers. To make this decision, James should first identify the Present Value (PV) of each offer. James's bank is offering a 12 percent (12%) interest rate when invested through the bank-managed growth stock portfolios. Let's help James make his decision by answering the following questions using the template to the right. 1. Without any calculation involving TVM, what offer would James accept ? 2. Using PV and/or FV, which offer should James accept? Does it change your perspective? Elaborate and explain. McCormick & Company has decided in order for the company to have a minimal impact on current cash flows, the company will need to borrow seventy percent (70%) Loan to Value (LTV) of the $4,242,000.00 offer in the form of a commercial acquisition and development loan to purchase the land. This means McCormick & Company will need to make a thirty percent (30%) down payment to secure the commercial acquisition and development loan. McCormick & Company is considering three different loan options: Loan A: 20-year loan with a fixed annual interest rate of 6 percent Loan B: 10-year loan with a fixed annual interest rate of 4.5 percent Loan C: 15-year loan with a fixed annual interest rate of 5 percent 3. How much of the total $4,242,000.00 offer will be financed? 4. Which loan will have the lowest monthly payment? 5. Which loan will have the lowest total payback amount? 6. Would you recommend McCormick & Company select the loan with lowest monthly payment or lowest total payment and why?
Corporate Valuation
| Capital Asset Pricing Model | ||||||||||||||
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| Dividend Valuation Model | ||||||||||||||
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Now that McCormick & Company has secured the land for the new factory through a loan, now it is time to construct the new factory. Instead of using operating cash flow to fund the construction of the new factory, McCormick & Company has decided to raise capital. To raise additional capital the company is considering issuing additional shares of stock. For McCormick & Company to determine how much it will cost the company to issue stock, the company must determine the required return on the stock in relation to the systematic risk. We can help McCormick & Company with this by answering the following questions using the provided information below: McCormick & Company uses the 10-Year Treasury Constant Maturity Rate as the risk-free rate. As of 7/1/2019, this was 2.03 according to the U.S. Treasury. McCormick & Company has disclosed the company's levered Beta is 0.60 (MarketWatch, 7/1/2019). McCormick & Company has disclosed the company's expected return on the market is 8.03% To answer the following questions, please use the template to the right. 1. What is McCormick & Company's required return on the issuance of stock using CAPM? In the CAPM, we examined the expected return on the market as a whole. In an effort to estimate the required return of McCormick & Company's stock, we will assume market equilibrium and use the Dividend Valuation Model (DVM), which is the expected return of McCormick' & Company stock. To find the cost of equity using DVM, we take the original equation and rearrange it solving for Rs: → McCormick & Company's expected dividend per share next year is $2.28 McCormick & Company's expected dividend per share constant growth rate is 8.70% (as of May 2019) McCormick & Company's stock price per share was $155.70 on 7/1/2019 2. Using the DVM what is the cost of equity?
Annuity
| Answer Questions 1 and 2 here. Show your calculations. | |
| 1 | PV |
| PMT | |
| 1b | PMT |
| 2 | PMT |
| Monthly | |
Questions 1. Marie, an employee at McCormick, has determined that she will need $5500 per month in retirement over a 30-year period. She has forecasted that her money will earn 7.2% compounded monthly. Marie will spend 25-years working toward this goal investing monthly at an annual rate of 7.2%. How much should Marie’s monthly payments be during her working years in order to satisfy her retirement needs? Hint: Find how much Marie must have at retirement, then find the monthly payments to reach that goal. What maximum amount could Marie withdraw each month so that her balance never decreases (nearest dollar)? 2. Kathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR. She and her husband Stan plan to buy a house in Garrison, MD and their budget is $500,000. They have $100,000 for the down payment and McCormick will pay for closing costs. They are considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%. Calculate the monthly payment for each. Property taxes and insurance will add $1,000 per month to which ever mortgage they choose. What should Kathy and Stan do?
