## Dickinson Company has \$11,940,000 million in assets.

Dickinson Company has \$11,940,000 million in assets. Currently half of these assets are financed with long-term debt at 9.7 percent and half with common stock having a par value of \$8. Ms. Smith, Vice-President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.7 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.

Under Plan D, a \$2,985,000 million long-term bond would be sold at an interest rate of 11.7 percent and 373,125 shares of stock would be purchased in the market at \$8 per share and retired.

Under Plan E, 373,125 shares of stock would be sold at \$8 per share and the \$2,985,000 in proceedswould be used to reduce long-term debt.

a.
How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.)

Current Plan Plan D Plan E
Earnings per share \$ \$ \$

b-1.
Compute the earnings per share if return on assets fell to 4.85 percent. (Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Current Plan Plan D Plan E
Earnings per share \$ \$ \$

b-2.
Which plan would be most favorable if return on assets fell to 4.85 percent? Consider the current plan and the two new plans.

Plan E
Plan D
Current Plan

b-3.
Compute the earnings per share if return on assets increased to 14.7 percent. (Round your answers to 2 decimal places.)

Current Plan Plan D Plan E
Earnings per share \$ \$ \$

b-4.
Which plan would be most favorable if return on assets increased to 14.7 percent? Consider the current plan and the two new plans.

Plan E
Current Plan
Plan D

c-1.
If the market price for common stock rose to \$12 before the restructuring, compute the earnings per share. Continue to assume that \$2,985,000 million in debt will be used to retire stock in Plan D and \$2,985,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 9.7 percent. (Round your answers to 2 decimal places.)

Current Plan Plan D Plan E
Earnings per share \$ \$ \$

c-2.
If the market price for common stock rose to \$12 before the restructuring, which plan would then be most attractive?

Plan E
Current Plan
Plan D

## Activity based costing. Referring to exhibit 12.10,

Activity based costing. Referring to exhibit 12.10, suppose that instead of 2000, 5000, and 3000 for an initial, regular and intensive visit, respectively, the number of visits was 2500, 6000, and 1500. Assume that the costs associated with intake, new visits, medical records and billing do not change in number or distribution.
a) Would there be a change in the overhead cost per visit of an initial visit using either the conventional or ABC methods?
b) Would there be a change in the total overhead cost of initial visits using either the conventional or ABC methods.
12) Use the information in exhibit 12.12 to answer these questions.
Dick Clark, the new administrator for the surgical clinic, was trying to figure out how to allocate the overhead expenses. He decided to try to allocate utilities based on square footage of each department, to allocate administration based on direct costs, and to allocate laboratory based on tests. How would indirect costs be distributed as a result?
Joe Ryan, the director of laboratories, was given approval to add 250 square to the lab by expanding into the day op suite which lost the space. What will his new fully allocated expenses be? Assume there are no additional costs incurred by adding the 250 square feet.
Mary Jones, the manager of the endoscopy suite, is concerned about adding more space. She contends that if the cystoscopy and endoscopy units were combined, fewer staff would be needed, and direct costs could reduced by \$40,000 (\$20,000) in each unit. She also feels that the day op area is underutilized and that 200 square feet could be used by a combined unit when excess capacity was needed. Assuming that the 200 square feet were to be allocated weekly between endoscopy and cystoscopy suites in addition to renovations as described in part B, what would the total allocated costs for each of these two services be under this scenario?

## Q1.What is the cost of capital (WACC) for Foggy Futures Weather Forecasters?

Q1.What is the cost of capital (WACC) for Foggy Futures Weather Forecasters?
The firm is in the 40% taxbracket. The optimal capital structure is listed below:
Source of Capital WeightLong-Term Debt 25% Preferred Stock 20% Common Stock 55% Debt:(Debt issued with a coupon interest rate of 15%. The bonds have a 10-year maturityand a \$1000 face value, and they will be sold to net \$980 after issue costs. Marginaltax rate is 40%) .PreferredStock:(Preferred stock will cost Ewing 10% after tax.) CommonStock:(Common stock pays a dividend of \$2 per share. The current market price is \$15.Dividends are expected to increase at an annual rate of 5% for the foreseeable future.No external equity will be used for the financing)
Q2) Alpah Company is planning to open a new store. The equipment and fixtures cost 250,000 and bedepreciated to \$0 over a 5 year period on straight line base. The new store will require Alpha to increase itsnet working capital by 200,000 at time 0. First year sales expected at \$1m and to increase at an annual rateof 8% over the expected 10-year life of the store. Operating expense projected to be \$700,000 during thefirst year and to increase at 7% annual rate. Salvage value anticipated at \$10,000 at the end of 10 years. Taxrate at 40%.Calculate• Net present value, using 18% required return.• Should Benford accept the project?• Internal rate of return• Profitability index.

## You are analyzing KKP Private Limited and you have collected the following information.

You are analyzing KKP Private Limited and you have collected the following information. KKP operates
7 nurseries and provides landscaping services to the condominiums in Korea. It started in the year 2000
and its revenues have grown at a compounded rate of about 12% a year. Its financial details for the past 3
years are shown below:

KKP plans to open another 3 nurseries. The initial capital expenditure required for this expansion is
estimated to be \$3 million, which is to be depreciated equally over three years to zero net book value. No
salvage value is expected. Based on a market feasibility study which cost \$100,000 to undertake, it
anticipates that sales will be \$300,000, \$500,000 and \$650,000 for the first three years.
Thereafter, it will grow at 2% per year indefinitely. Gross profit will be 50% of sales. Fixed overheads in
the first three years is estimated to be \$75,000 per year and this will increase to \$125,000 from year four
onwards. Net working capital is estimated to be 12% of sales, which is required at the start of the year. As
the firm expects to fully implement a just-in-time inventory system, the net working capital will be fully
recovered at the end of year three.
For the purpose of investment appraisal, the company uses a market risk premium of 5% and risk-free rate
of 3%. Its historical beta is 0.8 and marginal tax rate is 20%. Good Landscaping has a target debt ratio of
16%. It issued bonds on July 1, 2013 for \$200,000 with a par value of \$100 and coupon rate of 8%. The
maturity of the bonds in on June 30, 2020. The market value of bonds is \$108.53. Its shares are selling at
\$1.20.
Question 1
Compute the accounting ratios for FY 2012 to 2014 and evaluate KKP’s liquidity, profitability, asset
utilisation and financial leverage. (25 marks)
Question 2
Calculate KKP’s cost of equity, cost of debt and weighted average cost of capital (WACC). (20 marks)
Question 3
Calculate the net present value (NPV) and examine whether Good Landscaping should proceed with this
growth strategy. (30 marks)
Question 4
Analyse and comment on the dividend policy over the last 5 years. (10 marks)
Question 5
In order to finance the expansion plan, the Board is considering several options such as issue shares for \$
9 million, borrow funds for \$9 million and reduce dividend payout to 40%. Compare the implications of
various options and recommend an appropriate financing alternative. (15 marks)

## Cases in Healthcare Finance, 5thEdition Copyright 2014

Cases in Healthcare Finance, 5thEdition Copyright 2014 Health Administration Press 12/6/2013 CASE 20 QUESTIONS CORAL BAY HOSPITAL Traditional Project Analysis1. What are the NPV, IRR, MIRR, and payback of the proposed ambulatory surgery center? Do the measures indicate acceptance or rejection of the proposed ambulatory surgery center? 2. Inflation is one of the most difficult factors to deal with in project analysis. a. Complete the inflation impact table shown in Exhibit 20.2. b. What management information is provided by the inflation impact table? 3. One board member wants to make sure that a complete risk analysis, including sensitivity and scenario analyses, is performed before the proposal is sent to the board. a. Perform a sensitivity analysis. b. What management information is provided by the sensitivity analysis? 4. a. Perform a scenario analysis. b. What management information is provided by the scenario analysis? c. Why is the expected NPV obtained in the scenario analysis different from the base case NPV? 5. A board member is interested in the utilization breakeven of the Center. a. What are the breakeven values of the three input variables that are highly uncertain? b. What management information is provided by the breakeven analysis? 6. To help with the risk-incorporation phase of the analysis, Jules consulted with Mark Hauser, the hospital’s CFO, about both the risk inherent in the hospital’s average project and how the hospital typically adjusts for risk. a. What is the project’s differential risk-adjusted NPV? b. Assess the corporate risk of the project. (No calculations are required. Think about correlation of the surgery center and hospital cash flows.) 7. Jules Bergman is aware that there are some qualitative factors that are relevant to the surgery center decision. a. What qualitative factors might support project acceptance? b. What qualitative factors might preclude project acceptance? c. Can you think of any costs that might be associated with the project that have not been included in the analysis? d. Are there any potential benefits that have not been included? e. What additional data would you seek from other hospital staff members to conduct a more thorough analysis? 8. Considering all points, would you build the ambulatory surgery center? 9. In your opinion, what are three key learning points from this case?

## Please answer number 39 using 37 and 38 ..list all steps

Question 375 out of 5 points
A stock has the following probability distribution: If economy is good (the probability is 20%), its expected stock return is 20%; if economy is on average (the probability is 60%), its expected stock return is 10%; if economy is bad (the probability is 20%), its expected return is -20%. Find the expected rate of return for the stock ______
6%
4%

6%
10%
14%
Question 385 out of 5 points
Using the data from Question 37, find the standard deviation (risk) for the stock_
13.56%
11.29%
11.57%
12.38%

13.56%
Question 390 out of 5 points
Using the results from Question 37 and 38, compute the coefficient of variation for the stock______
2.49
2.26
2.38
2.49
0.44

## Construct a spreadsheet to replicate the analysis of the table.

Construct a spreadsheet to replicate the analysis of the table. Click here to view the table. That is, assume that \$10,000 is invested in a single asset that returns 7 percent annually for twenty-five years and \$2,000 is placed in five different investments, earning returns of 100 percent, 0 percent, 5 percent, 10 percent, and 12 percent, respectively, over the twenty-year time frame. For each of the questions below, begin with the original scenario presented in the table:
a. Experiment with the return on the fifth asset. How low can the return go and still have the diversified portfolio earn a higher return than the single-asset portfolio?
b. What happens to the value of the diversified portfolio if the first two investments are both a total loss?
c. Suppose the single-asset portfolio earns a return of 8 percent annually. How does the return of the single-asset portfoliocompare to that of the five-asset portfolio? How does it compare if the single-asset portfolio earns a 6 percent annual return?
d. Assume that Asset 1 of the diversified portfolio remains a total loss (–100% return) and asset two earns no return. Make a table showing how sensitive the portfolio returns are to a 1-percentage-point change in the return of each of the other three assets. That is, how is the diversified portfolio’s value affected if the return on asset three is 4 percent or 6 percent? If the return on asset four is 9 percent or 11 percent? If the return on asset five is 11 percent? 13 percent? How does the total portfolio value change if each of the three asset’s returns are one percentage point lower than in the table? If they are one percentage point higher?
e. Using the sensitivity analysis of (c) and (d), explain how the two portfolios differ in their sensitivity to different returns on their assets. What are the implications of this for choosing between a single asset portfolio and a diversified portfolio?

## The FBI for committing massive financial statement fraud arrested the officersof an oil refiner

The FBI for committing massive financial statement fraud arrested the officersof an oil refiner, trader, and hedger based in New York. The executives used many schemes to perpetuate the fraud, one of which was to hide a \$30 millionaccounts payable from the auditors and show it as a payable arising in the following year. To conceal the fraud, they altered purchasing records, using correction fluid, and provided only photocopies of the records to the auditors. The Big 4 firm that audited this company was later sued for audit negligence in not finding this fraud.In your opinion, were the auditors negligent for accepting photocopies of purchasing records and not detecting this accounts payable understatement?My opinion is:Yes the Big 4 firm was negligent because…5-Paragraph essay. At least 4 sentences per paragraph.The main idea for the three body paragraphs: Not providing original documentation when original documentation should exist is an accounting/documentary warning sign of fraudSuch a large amount of money that would significantly impact the financial results of the company appears as a payable for next year, when a payable this year would hurt the financial statementBecause of the documentary indication, did the Big 4 firm auditors try to find out information about the officers including their personal financial information to detect any significant lifestyle changes

## All variables and functons are To be Typed (declared)

All variables and functons are To be Typed (declared). HinT: opton expliciT. SIN and COS are The Excel functons and are for comparison. 1. A cosine can be approximaTed by The following inFniTe series:cosx=1−(x22!)+(x44!)−(x66!)+…WriTe a functon ThaT will calculaTe This for any x and y number of Terms. If y > 85 or y is noT a positve inTeger, reTurn an error.XYCos( x)MyCosine (x,y)Approximaton error0.3183190.954939.51.27324371.591549652.228169882. An index linked note is an instrument that provides investors fixed income-like principal protection together with equity market upside exposure. It is structured by combining the economics of a long call option on equitywith a long discount bond position. The investment pays the greater of the par value, \$1,000, or the price times the percentage increase in the S&P 500.Write 2 functions (elnPayoff, elnReturn). The first, elnPayoff, calculates the security payoff at maturity. The second, elnReturn, calculates the annualized return assuming continuous compounding. The function elnReturnshould call the payoff function.PriceYearsSP5000SP5001Payo±ReTurn961117831995923212981498819512881568727813351270

## This assignment contains two parts: Part I and Part II.

This assignment contains two parts: Part I and Part II.
Part I