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bu440b_assignment_4_finantial.docxASSIGNMENT 04
BU440 Financial Management II
Directions: Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling, and grammar.
Respond to the items below.
Part A: Cost of Debt
Kenny Enterprises has just issued a bond with a par value of $1,000, twenty years to maturity, and an 8% coupon rate with semiannual payments.
a. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices?
1. $920
2. $1,000
3. $1,080
4. $1,173
b. What do you notice about the price and the cost of debt?
Part B: Comparing NPV and IRR
Chandler and Joey were having a discussion about which financial model to use for their new business. Chandler supports NPV and Joey supports IRR. The discussion starts to get heated when Ross steps in and states, “Gentlemen, it doesn’t matter which method we choose, they give the same answer on all projects.”
a. Is Ross correct?
b. Under what three (3) conditions will IRR and NPV be consistent when accepting or rejecting projects?
Part C: Production Cash Outflow
The Creative Products Corporation produces its products two months in advance of anticipated sales and ships to warehouse centers the month before sale. The inventory safety stock is 15% of the anticipated month’s sale. Beginning inventory in October 2009 was 120,000 units. Each unit costs $1.50 to make. The average selling price is $2.50 per unit. The cost is made up of 60% labor, 30% materials, and 10% shipping (to warehouse). Labor is paid the month of production, shipping the month after production, and raw materials the month prior to production. What is the production cash outflow for the month of October 2009 production, and in what months does it occur? Assume that the sales forecast for December 2009 is $2,500,000.
Grading Rubric
Please refer to the rubric below for the grading criteria for this assignment.
CATEGORYExemplarySatisfactoryUnsatisfactoryUnacceptable
20 points 15 points 10 points 5 points
Student correctly calculates
the cost of debt at each of
the four selling prices.
Student correctly calculates
the cost of debt at three of
the four selling prices.
Student correctly calculates
the cost of debt at two of
the four selling prices.
Student correctly
calculates the cost of debt
at one of the four selling
prices.
20 points 15 points 10 points 5 points
Student correctly responds
with all three supporting
conditions under which IRR
and NPV will be consistent.
Student correctly responds
with two supporting
conditions under which IRR
and NPV will be consistent.
Student correctly responds
with one supporting
condition under which IRR
and NPV will be consistent.
Student correctly responds
yet provides incorrect
supporting conditions
under which IRR and NPV
will be consistent.
10 points 8 points 5 points 2 points
Student accurately
determines all of the
following: unit sales
forecast, beginning
inventory, safety stock
requires, and total cost of
production.
Student accurately
determines three of the
following: unit sales
forecast, beginning
inventory, safety stock
requires, and total cost of
production.
Student accurately
determines two of the
following: unit sales
forecast, beginning
inventory, safety stock
requires, and total cost of
production.
Student accurately
determines one of the
following: unit sales
forecast, beginning
inventory, safety stock
requires, and total cost of
production.
10 points 8 points 5 points 2 points
Student accurately
determines the amount and
month paid for Labor Cost.
Student accurately
determines the amount yet
miscalcuates the month paid
for Labor Cost.
Student somewhat
accurately determines the
amount yet miscalculates
the month paid for Labor
Cost.
Student incorrectly
determines the amount
yet accurately determines
the month paid for Labor
Cost.
10 points 8 points 5 points 2 points
Student accurately
determines the amount and
month paid for Shipping
Cost.
Student accurately
determines the amount yet
miscalcuates the month paid
for Shipping Cost.
Student somewhat
accurately determines the
amount yet miscalculates
the month paid for Shipping
Cost.
Student incorrectly
determines the amount
yet accurately determines
the month paid for
Shipping Cost.
10 points 8 points 5 points 2 points
Student accurately
determines the amount and
month paid for Material Cost
Student accurately
determines the amount yet
miscalcuates the month paid
for Material Cost
Student somewhat
accurately determines the
amount yet miscalculates
the month paid for Material
Cost
Student incorrectly
determines the amount
yet accurately determines
the month paid for
Material Cost.
10 points 8 points 5 points 2 points
Student makes no errors in
grammar or spelling that
distract the reader from the
content.
Student makes 1-2 errors in
grammar or spelling that
distract the reader from the
content.
Student makes 3-4 errors in
grammar or spelling that
distract the reader from the
content.
Student makes more than
4 errors in grammar or
spelling that distract the
reader from the content.
10 points 8 points 5 points 2 points
The paper is written in
proper format. All sources
used for quotes and facts are
credible and cited correctly.
The paper is written in
proper format with only 1-2
errors. All sources used for
quotes and facts are credible
and most are cited correctly.
The paper is written in
proper format with only 3-5
errors. Most sources used
for quotes and facts are
credible and cited correctly.
The paper is not written in
proper format. Many
sources used for quotes
and facts are less than
credible (suspect) and/or
are not cited correctly.
Format (10 Points)
Part A: Cost of Debt
(20 points)
Mechanics (10
Points)
Part B: Comparing
NPV and IRR (20
points)
Part C4: Production
Cash Outflow -
Material Cost (10
points)
Part C1: Production
Cash Outflow - Cost
of Production (10
points)
Part C2: Production
Cash Outflow -
Labor Cost (10
points)
Part C3: Production
Cash Outflow -
Shipping Cost (10
points)
