Best writers. Best papers. Let professionals take care of your academic papers

Order a similar paper and get 15% discount on your first order with us
Use the following coupon "FIRST15"
ORDER NOW

StudyFIN AOL ASSIGNMENTCASE ANALYSIS:

/in /by

StudyFIN AOL ASSIGNMENTCASE ANALYSIS:The Case of the Junior AnalystMarkwas recently hired by Boeingas a junior budgetanalyst.He is working for the Venture Capital Division andhas been given for capital budgeting projects to evaluate.He must give his analysis and recommendation to the capitalbudgeting committee onWednesday, June 1.Mark has a B.S. in accounting from WWU (2007) and passed theCPA exam (2008). He has been in public accounting for 2years.During that time he earned an MBA from Seattle U.He would like to be the CFO of a company someday–maybeBoeing– and this is an opportunity to get onto that careertrack and to prove his ability.As Marklooks over the financial data collected, he istrying to make sense of it all.He already has the mostdifficult part of the analysis complete — the estimation ofcash flows.Through some internet research and applicationof finance theory, she has also determined the firm’s beta.Here is the information that Amber has accumulated so far:The Capital Budgeting ProjectsHe must choose one of the four capital budgeting projectslisted below:Table 1tABCD0(16,000,000)(20,000,000)(19,000,000)(18,000,000)15,500,0007,000,0008,200,0009,000,00025,500,0008,000,0008,200,0007,000,00037,000,0008,000,0005,200,0006,000,00047,000,0001,000,0005,200,0005,000,000RiskLowAverageHighAverageTable 1 shows the expected after-tax operating cash flowsfor each project. All projects are expected to have a 4 yearlife.The projects differ in size (the cost of the initial1
Background image of page 1
View the Answer
FIN Case Studyinvestment), and their cash flow patterns are different.They also differ in risk as indicated in the above table.The capital budget is $20 million and the projects aremutually exclusive.Capital StructuresBoeinghas the following capital structure, which isconsidered to be optimal:Debt40%Preferred Equity10%Common Equity50%100%Cost of CapitalMark knows that in order to evaluate the projects he willhave to determine the cost of capital for each of them. Hehas been given the following data, which he believes will berelevant to his task.(1)The firm’s tax rate is 30%.(2) Boeing has issued a 13% semi-annual coupon bond with 10years term to maturity. The current trading price is $1,206.(3) The firm has issued some preferred stock which pays anannual 9% dividend of $100 par value, and the current marketprice is $110.(4) The firm’s stock is currently selling for $68 per share.Its last dividend (D0) was $4, and dividends are expected togrow at a constant rate of 8%. The current risk free returnoffered by Treasury security is 2.5%, and the marketportfolio’s return is 10.5%. Gracious Fashion has a beta of1.5. For the bond-yield-plus-risk-premium approach, the firmuses a risk premium of 4.5%.(5) The firm adjusts its project WACC for risk by adding2.5% to the overall WACC for high-risk projects andsubtracting 2.5% for low-risk projects.Mark knows that Boeing executives have favored IRR in thepast for making their capital budgeting decisions.Hisprofessor at Seattle U. said NPV was better than IRR.Histextbook says that MIRR is also better than IRR.He is the2
Background image of page 2

 
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"