lvan Sergeevich Turgenev (1818-1883)
The next three writers whose short stories we are going to study in this course are
Ivan Sergeevich Turgenev, Fedor Mikhailovich Dostoevsky (1821-1881), and Lev (or,
Leo) Nikolaevich Tolstoy (1828-1910). These three contemporaries, almost peers, are
considered the most important Russian novelists and prose writers of the 19th century.
Among all three, Tolstoy is often viewed as the world’s 19th-century greatest writer, and
his novel, War and Peace, the best novel in the world’s literature. Tolstoy’s supremacy in
literature, however, is argued by the supporters of Dostoevsky, whilst Turgenev has both
“the pleasure and pain” of being the contemporary of these two rivals (who, by the way,
had never met in person). Yet, Turgenev’s Western friends and colleagues, Gustave
Flaubert, and Henry James, considered him the best of all Russian prose writers, even
though Russian critics generally depicted him as a poor relative of his more talented
contemporaries.
According to an American literary critic and scholar, Irwil Weil, “This depiction
is grossly unfair, as anyone who has read Turgenev’s prose with half a heart can testify.
Yet life itself seemed determined to put Turgenev down. He was once challenged by
Tolstoy to a duel, and he was branded as a coward when he wisely avoided such a
potential tragedy. Later, there was the famous reconciliation at Iasnaia Poliana [Tolstoy’s
country estate located not far from the city of Tula, 200 km south-west of Moscow –
S.C.], lasting until one of them lost a game of checkers! Dostoevsky never forgave
Turgenev his kindness in lending money when Dostoevsky desperately needed it. Later,
the religious writer savaged Turgenev as Karmazinov in the novel translated as The
Possessed. Such are the literary rewards of liberal kindness! In almost all the Russian
writers we have thus far examined, one of their outstanding characteristics was a strength
of conviction, the notion that they had an idea or a theme of vital importance, which they
would communicate directly, no matter what the consequences might be. In the case of
Turgenev, we find a genuine contrast to this kind of extreme passion. Turgenev, with the
temperament of the true liberal, the man who found himself between the extremes of
public opinion, often ended up in the middle of his society’s polemics, attacked and even
cursed by both sides or, even worse, praised for exactly the wrong reasons, or so it
seemed to him.” (Classics of Russian Literature, 2, 47-8. The Teaching Company,
Chantilly, VA, 2007).
Turgenev was born into a wealthy landowner’s family who lived in their own
large estate in central part of Russia, in the province of Orel. His mother was known for
cruelness to her own serfs – the behavior which was strongly opposed by Turgenev.
During all his life he would fight against any forms of slavery, however, like in the case
with Tolstoy, there was a deep contradiction in Turgenev since he himself was bound by
the restrictions of his class and depended on the income produced by his estate. His
mother was very manipulative and used this as a means to control the actions and
opinions of her son literally until her death.
In 1847, Turgenev published the first of several of the short stories called “Khor’
and Kalinych” (the names of the two male peasants) presumably about his hunting
expeditions in the Russian countryside. Later these stories were gathered in one volume
called Notes of a Hunter (or,…of a Huntsman, or… of a Sportsman, in the English
translation). The book became the most truthful contemporary portrayal of the Russian
peasantry, suppressed by the landowners, and of the horrific conditions it lived under.
After its publication Turgenev became increasingly popular among all classes and,
naturally, greatly beloved by the peasants. His book made a significant input in the case
of the liberation of the peasants and their official emancipation (the abolition of the
serfdom) which occurred in 1861.
Generally, Turgenev’s political views were on the side with those who wanted
western type of parliamentary democracy in Russia – something that in the country of
whose days was absolutely impossible due to the rule of the tsars and to the absence of
any political or social freedom. The supporters of the tsardom were opposed by the
radicals, who wanted to see more crucial political changed, i.e. socialism. And many of
the latter looked upon Turgenev as a supporter, who after having inherited his family
estate was able to provide such a support. Both for that and for his critical opinions about
the government, he fell under the dislike and suspicion of the government. After his
speech in support of Gogol’s satirical views of the Russian bureaucracy, Turgenev was
briefly imprison, and after the release from the prison had to leave Russia for a long
period of time, settling in Europe, mostly in France.
In France, Turgenev’s life-long affair with a famous ballerina, Pauline Viardot,
continued. But Pauline was married, and for years to come this was a sort of ménage de
trios, preventing Turgenev from a complete personal happiness and an established family
life. Turgenev’s correspondence with Poline is a deeply touching romance in letters.
While abroad, Turgenev was very much involved in the political and cultural
events at his home country. His love and passion to Russia was never ending and he
deeply suffered due to the fact of his separation from his country and the lack of freedom
in it. In the West, Turgenev tried extremely hard to popularize the works of his great
Russian contemporaries, particularly Pushkin and Tolstoy. His pain and compassion
about Russia is reflected in his famous poem in prose, On the Russian Language (see at
the end of this lecture). He died in 1883 in Russia, and “when he was on his deathbed, he
wrote a deeply moving letter to Tolstoy, begging him to return his great talent to
literature for the sake of Russia's welfare.” (Weil, 50). Tolstoy by that time had almost
completely deviated from writing literary works, becoming an open opponent of the
regime and a disdainer of the oppression of the people by the government and official
church.
In his many other works, Turgenev presented an outstanding panorama of both
male and female characters, and particularly, their duality which apparently became
strongly expressed in his depiction of the conflict between generations. Passions of his
protagonists are particularly emphasized by Turgenev: his female characters are active
and powerful, and his male protagonists, though good in words, often lose when it comes
to a decisive action. His other works include a series of extremely finely crafted short
stories and novellas, as well as several relatively short novels. Among a few examples are
a short story “First Love,” an essay, “Hamlet and Don Quixote,” and a major novel,
Fathers and Sons (in Russian – Fathers and Children, 1861). The most influential in the
cultural, political and social sense is Fathers and Sons. Its central character is a young
and talented doctor Bazarov who presents himself as a “nihilist” – the one who wants to
destroy all present institutions. Turgenev’s invention of this term was a reflection of the
most acute contemporary problems that existed between the conservatives and liberals,
and between the younger and the old generations.
From the literary perspective, a nihilist Bazarov became the literary type who
extended the line of a superfluous man, began by Pushkin’s Onegin (in his novel in verse,
Eugene Onegin) and continued by Lermontov’s Pechorin (in his Hero of Our Time). In
Turgenev’s novel, the clash between two generations has turned out to be mortal, and at
the end of it Bazarov dies. Turgenev was blamed by many for this “killing” of the
opponent of the regime, especially during the decade of the 1860s. This was a very
productive time for the development of Russian prose. All writers, including these three
giants, were in the middle of the polemics about the future fate of Russia’s peasants, the
younger and the old generations, and the new ways of the political development of the
rapidly changing country. After the oppressive Tsar Nikolas I (under whom Pushkin,
Lermontov, and Gogol lived) died in 1854, the relatively liberal Alexander II came to
power; his regime made it possible to dispute many of the previously forbidden political
and social questions openly. The Russian writers were the first to catch this moment, and
Turgenev’s Fathers and Sons was the first major novel to appear. Not only it had
influenced Tolstoy’s and Dostoevsky’s future writings but also played a tremendous role
in the life of society and in the development of liberal process.
“Bezhin Meadow” (From Notes of a Hunter)
Turgenev’s work under discussion is a short story “Bezhin Meadow” from the
aforementioned collection, Notes of a Hunter. A precursor of Fathers and Sons, Notes of
a Hunter revealed Turgenev’s innovative approach not only to literary writing but also to
the most burning social issues. First and foremost, it was appreciated by the
contemporaries due to its truthful depiction of the acute social issues and seen as an open
call in the defense of suppressed peasantry. Turgenev introduced the new protagonists –
Russian serfs – as a major collective character. His Notes became a social and moral
tuner for other literati who wanted to touch upon the issues of social inequality and
describe the life of the repressed people.
At the same time, the critical social sound of these stories was not their only
important feature: in addition, this book presented a panoramic description of Russian life
with its traditions and beliefs whose sole bearer and keeper was the people. Turgenev
portrays numerous types of characters, their visions of life, their mindsets, understanding
of good and evil, generosity, truthfulness, and spiritual search. Altogether, these
characters carry on the features of Russian national character, represent the future of the
country, and, at the same time, show how much of the positive energy and how many
aspirations disappear in this nation without a trace.
The very devise of “walking” through the native land provides the author with the
opportunity to see both a poor peasant village and a rich landowner’s estate, a small
forest house of a huntsman and a roadside tavern, and to meet with an impoverished
peasant and with aristocrats educated in Europe. Satirical portrayals of the landowners
contrast with the depiction of the genuine features of the peasants. Turgenev shows life
and death of a simple Russian man, his love and suffering, his hopes and superstitions,
and in each and every story the most important role is given to the pictures of nature. And
to prove the importance of these beautifully depicted landscapes to the main idea of the
book, Turgenev completes this book with the story called “The Forest and the Steppe” –
the apotheosis of Russian nature.
Nature is a usual and an ordinary habitat of the peasants yet in Turgenev’s stories
it never plays the role of a passive background. The images of nature increase poetic
depictions of the characters and add to the creation of a certain artistic mood. Through
these pictures of nature Turgenev expresses his love to the motherland and to his people.
At the same time, nature is a huge elemental force full of the unsolved mysteries,
independent from humans, their lives, and their movements. The landscapes thus become
the most important part of the entire collection which unite its components and carry its
artistic meaning. Overall, Turgenev became the first writer who “opened up,” revealed
the poetry of the landscapes of the central part of Russia to the rest of the world,
presenting them in their natural beauty and filling his descriptions with a deep
philosophical sense.
In “Bezhin Meadow,” the narrator- hunter meets five peasant boys in the middle
of the steppe and spends a night with them under the starts. These boys, while watching
horses, are sitting around the bonfire and telling stories to each other; the narrator is
listening to their stories, making notes about their characters and drawing his own
conclusions. Their names are: Fedya, Pavlusha, Ilyusha, Kostya, and Vanya. Although
these are the abbreviated versions of the adult names, they are not used by the author in
their diminutive, neglecting forms (the way the peasant children would usually be
referred to) but rather in the tender, family-like forms. In this positive mood the author’s
depiction of the boys begins, going through the entire story, and ending both with the
joyful celebration of the coming morning and the sad news about the future death of one
of the boys.
To continue and complete the analysis of this story, you should be able to answer
the following questions:
1. Describe the appearance and the character of each of the boys.
2. Whom does the narrator like and whom does he dislike? Why?
3. What are the stories the boys are telling to each other about? What makes them
choose such topics?
4. What scares the boys? And what makes them laugh?
5. Does the narrator interact with them at all or not? If yes, in what manner?
6. Do you think these boys are literate or not? Are they superstitious and religious or
are they rational? Are they poor or rich?
7. What can you tell about the depiction of nature in this story? Why does the
narrator begin and end his story with the beautiful descriptions of the landscapes,
of the evening, of the night, and the early morning? How does the nature
contribute to the creation of the artistic mood along the story?
8. Make a guess: to which trend in the 19th-century literature this story belongs:
sentimentalism, romanticism, realism or critical realism as a continuation of
realism? Or, maybe, to fantastic realism?
9. Did you like this story or not? Please explain why.
ON THE RUSSIAN LANGUAGE by Ivan Turgenev
In these days of doubt, in these days of painful brooding over the fate of my country, you
alone are my rod and staff, O great, mighty, true and free Russian language! If it were not
for you, how could one keep up from despairing at the sight of what is going on at home?
It is inconceivable that such a language should not belong to a great people (Translated
by George Gibian).
FIN 550 Homework Guidelines and Rubric This course uses homework problems to demonstrate competence and allow for practice with calculations unique to finance. Complete all your calculations in the Homework Student Workbook. Then summarize your findings and discuss the implications of the findings for the business or potential business transaction. Follow the instructions for each question in Modules Three and Five and complete the assigned work. Guidelines for Submission: Each homework assignment must be submitted as a 1-page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins. Any sources should be cited according to APA style. In addition, your Homework Student Workbook must be submitted to demonstrate all calculations.
Critical Elements Proficient (100%) Needs Improvement (70%) Not Evident (0%) Value
Accuracy of Calculations
Includes detailed calculations, including demonstration of each step taken to accurately complete the problem
Includes calculations that are inaccurate and/or does not include all of the steps needed
Includes calculations that are inaccurate and does not provide an explanation of calculations
45
Analysis: Implications Includes an explanation of the implications of the findings for the business and/or potential business transaction
Explains the implications of the findings, but there are inaccuracies or explanation is insufficient
Does not include an explanation of the findings
45
Articulation of Response
Submission has no major errors related to citations, grammar, spelling, syntax, or organization
Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas
Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas
10
Earned Total 100%
[Type text] [Type text] [Type text]
1
Case Study: Stock Valuation and Bond Issuance
Robert Shulzinsky
Southern New Hampshire University
December 16, 2017
A. From the figures provided compute;
1. The new dividend yield if the company increased its dividend per share by 1.75
Dividends yield is given by the formula =
The above formula or equation based on the dividend yield is normally used for calculation of the percentage return on stock in respect to dividends accrued over the period. Generally, the total return on a stock is termed as the accrued overall dividends and appreciation of a stock in the specifications. Moreover, dividends paid for a company is found on the statement on retained earnings, hence is used to compute dividends per share.
Dividends Yield Formula
The formula is used by investors who opt to focus on increasing or declining rate of the dividend yield. On wide angle, an organization or a firm that is spending less in dividends in regard to its price probably having problems or retaining most of a percentage on net income for its development. When inspecting stock, it is good to consider the whole company and its net income being retained since reinvesting on net income would lead to appreciation of the stock value and the general growth.
This formula is of greater interest on investors who depends mainly on dividends from their normal savings and investment. Furthermore, lower yield on dividends does not mean little dividends since the price may substantially be increased. As illustrated before, a sequence of declining yield on dividends may only warrant inspection but not immediate decline of the proposed investment.
The dividend Yield is calculated as= =
2. The dividend yield if the firm doubled its outstanding shares
The dividend on stock and corresponding stock split generally increase the number of outstanding shares while others remains constant, the price of stock decreases. Hence, the price of the stock dilutes further on stock dividend /stock split.
Furthermore, stock split comprises of a decision by the organization or firm board of directors aimed at increasing the shares that may be outstanding facilitated by giving more shares to the general shareholders’. in a 2-for-1 stock split, each shareholder owning a stock is given an extra share. For example, if a firm had 10m shares pending before split, it tends to be holding 20m outstanding shares after (2-for-1 split).
The price of stock is influenced directly by a stock split. Immediately after split, the price of stock is reduced since the actual number of outstanding shares goes higher. In the above 2-for-1 split example the actual price would be halved. Hence, despite the change on the outstanding shares and stock number, market capitalization pertains i.e. never change.
When or if the company doubled its outstanding shares, the price of stock will thus be halved, which will be $39.47.
Now dividend Yield will be= =
3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above
The return on equity ratio or ROE is an interest or profit ratio that evaluates the ability of a company to increase profit returns from shareholders investments within the firm. On another case, the return on equity ratio reflects total profit on each dollar on individual stockholders' equity earned or generated.
Generally, return on 1 implies that each dollar of normal stockholders' equity earns 1 dollar on the total net income. It is an important measure for investors since they opt to see how effective a fill would use their cash capital to increase net income generation. It is also an indicator on the effective management it employs the use of equity financing policy and terms to finance operations to enhance company growth.
Return on equity ratio = = .
B. What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning.
Dividends influences the price in stock on the following discussed three major ways. Basically, when a certain dividend is paid for, the accrued value is subtracted from the specific firm’s or organization retained earnings. These earnings are termed as the total profit accrued or received by a company after accumulating consecutively over time which has not been placed to other alternative uses. In simple words, the total amount of money a firm has in account which can be used to pay dividends and fund companies projects.
When big firms and companies tend to display dividend histories, they seem more effective and efficient for investors. Thus, many investors come in to utilize the advantage the benefit of stock ownership, definitely the price of stock naturally shift upwards, hence increasing the belief that the stock is firm in the market. In case a company releases a higher-than-normal dividend, general public tends to break in and soar.
However, when a firm that analogically pay dividend issues a lower-than-normal dividend, it may end up to be perceived as a sign of failure or collapse on the company during hard times. Honestly it could be, the company's profits generated are being misused or used for other un necessary purposes, but in real market's reflection on the situation is always stronger and influential than the reality. For such companies, they work hard to pay consecutive dividends for the sake of avoiding spooking business investors who feel the investment as darkly, scamming and foreboding.
Dividend Declaration and Distribution
When a dividend is to be distributed, issuing firm first declare the amount in it plus the date it will be paid. Further, announces the last date where the free shares can be bought to receive dividend, namely the ex-dividend date. The date is conducted in two business days in respect to the date in the record, i.e. date on which the company reviews the list of its genuine and trusted shareholders.
The dividend declaration naturally promotes investors to increase on stock purchases. Since investors are aware and sure to receive a dividend if they buy more stock prior to ex-dividend date, they would fully be willing to pay all premiums required earlier. This poses price increment on stock in within the days leading to the ex-dividend date. Moreover, the increment almost equal to amount of the dividend. However, the actual price variation is based on market activities and is not influenced by the governing entities.
During the specified ex-dividend date, exchange decreases the price of the stock to the amount of the dividend to compensate for the fact that new business investors may not eligible to receive dividends hence unwilling to pay premiums. More also, when the market is certainly optimistic about the stock leading to ex-dividend date, price shifts upwards and creates thus may be greater than normal dividend value, leading to a net increase in respect of the automatic decrement. Incase dividend is not large; the decrement may shift unnoticed because of back and forth in the normal trading. It is established that many investors buy shares just slightly before the ex-dividend date and sell again slightly after the date of record. This tactic fetches more money.
C. To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.
As to whether a dividend paid to individual shareholders influences the issuing firm's retained earnings, it primary depends entirely on type of dividend accrued. Cash dividends have a straight impact on retained earnings and the general issuance of stock on the dividends is quite complicated.
If a firm or organization wish to issue dividends to shareholders and don't have extra cash on hold, it may opt to use a stock dividend. Any company may also adopt this alternative as a way of reducing the value of existing shares, pulling down the price (P/E) ratio and other financial factors. Similarly called bonus shares, a dividend on stock alters the firm balance sheet in many ways depending on the issuance size.
When the shares outstanding figures increases by less than 20 to 25%, dividend is referred to as small. If a small dividend is suddenly declared, retained earning value on the account is debited by specific product on the current price of the market per share, outstanding number of shares and percentage dividend on stock. This systematic equation yields the bonus value for specified shares in dollars. In above case, when company ABC has 1.5m shares outstanding and selling at $50 per share, thus it may or announces a 10% stock dividend, then retained earnings account is then debited by the calculations as1,500,000 * 10% * $50, / $7.5 million.
If this was paid in cash dividend, it would be terminating the desired or above calculation. But since it has not paid any cash / value of the above business remains constant, the figure is reassigned direct from retained earning account through paid-in capital final to common stock accounts after issuance of available bonus shares. Moreover, common stock account (credit) = product of the total new shares issued * by the par value per share. The R is then credited as paid-in capital (reminder).
If shares on above example have a par value of 1 cent, then amount credited to common stock =1,500,000 * 10% * $0.01, simply= $1,500. The R= $7,498,500 is credited to the paid-in capital account (R-reminder). The overall worth of the company pertains or remains constant, but only assets allocation is altered.
If stock dividend raises up the number of shares outstanding in more than 20 to 25%, it is referred as a large dividend hence the accounting varies slightly. In above case, only par value of the current shares is debited direct from the retained earning account more also reassigned to common stock account after the dividend has been distributed. When a company ABC instead releases a 50% dividend, the total amount debited from retained earning account should now be =1,500,000 * 50% * $0.01, simply= $7,500. This because only the par value in the bonus shares was taken into the account.
When small stock dividend poses a greater impact on the retained earning account, the overall credit worth of the company normally remains constant or un altered by stock dividends for any available size.
3. Bond Issuance
A. By assuming this company already has bonds outstanding, calculate the following:
1. The new value of the bond if overall rates in the market increased by 5%
Assuming this company already has bonds outstanding
· The Par value=$1,000
· The Maturity date = 5 years
· The Market interest rate = 8%
· The Annual coupon payment = $80
Present value of a bond = Present Value of the Coupon Payments (an annuity) + The Present Value of the Par Value (i.e. Time value of money) = INT = $319.42+$ 680.58=$1000.003
Assuming the interest rate increase from 8% to 13%.
New bond value = Present Value of the Coupon Payments (an annuity) Present Value of the Par Value (time value # money) given by formula = INT = $281.38+$ 542.76=$824.14
2. The new value of the bond if overall rates in the market decreased by 5%
Assume the interest rate decrease from 8% to 3%.
New bond value = Present Value of the Coupon Payments (an annuity) + Present Value of Par Value (time value # money) = INT = $366.38+$ 862.61=$1228.99
3. The value of the bond if overall rates in the market stayed exactly the same
The bond value will remain constant if the overall rates in the market maintain exactly the same/ constant.
Present bond value = Present Value of the Coupon Payments (an annuity) + Present Value of Par Value (time value # money) = INT = $319.42+$ 680.58=$1000.003
B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning.
The fundamental principle behind bond investing is the fact that interest rates in market and prices of bonds move in opposite orientations. Incase market interest rates increases, prices on fixed-rate bonds drops down. This process generally referred to as interest rate risk. Based on this phenomenon, bond valuation seizes from being viable option for continuous increase in capital. Contrary to this where market interest rates drop down, the bond prices tend to rise. Hence, interest rate risk unique and similar to all bonds more also to treasury bonds.
A bond’s maturity and coupon rate generally affect how much its price will change as a result of changes in market interest rates. If two bonds offer different coupon rates while all of their other characteristics (e.g., maturity and credit quality) are the same, the bond with the lower coupon rate generally will experience a greater decrease in value as market interest rates rise. Bonds offering lower coupon rates generally will have higher interest rate risk than similar bonds that offer higher coupon rates.
When interest rates in the market falls, the bond value increase has the bond's fixed interest payments becomes greater compared to amounts available in current bonds issued at new interest rates in the market.
References:
1.https://www.sec.gov/investor/alerts/ib_interestraterisk.pdf
2. http://www.financeformulas.net/Dividend_Yield.html
3.http://www.investopedia.com/ask/answers/113.asp
4.http://www.myaccountingcourse.com/financial-ratios/return-on-equity
5.http://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp
FIN 550 Milestone Four Guidelines and Rubric Overview: For the final project, you will use this case study to prepare a financial analysis report for Home Depot Inc. You will include in your analysis the background calculations and managerial analysis for each of the following topics: time value of money, stock and bond valuation, and capital budgeting. You will also discuss macroeconomic variables that might impact the company’s financial decision making and strategic objectives. These topics will be covered over four milestones to be submitted throughout the course before you submit the final project. Note that while these elements may seem separate and unrelated, together they will present a well-rounded view of the company’s finances with regard to the topics. In Milestone Four, you will submit a draft of the Macroeconomic Items section of the final project, along with your supporting explanations. Prompt: Provide an explanation of the impact of external factors on the financial position of Home Depot. Use the designated tab in the Final Project Student Workbook to demonstrate the implications of interest rate changes on at least one of the calculations you performed in one of the earlier milestones. Specifically, the following critical elements must be addressed:
V. Macroeconomic Items: The CEO of the company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince him otherwise based on the following:
A. Analyze the implications of interest rate changes on any of the calculations you performed. Be sure to substantiate your claims. B. How might an issue (negative or positive) within the overall stock market impact the company’s stock valuation numbers, other financial
variables, or its overall portfolio management? Be sure your response is supported by evidence. C. Analyze the impact of any external factor (i.e., external to the company) discussed throughout the course on the company’s financial position. Be
sure to justify your reasoning. Guidelines for Submission: Your paper must be submitted as a 2- to 3-page Microsoft Word document, not including your calculations, which should be completed in the Final Project Student Workbook. Use double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to APA style.
Rubric
Critical Elements Proficient (100%) Needs Improvement (80%) Not Evident (0%) Value
Macroeconomic Items: Implications of Changes
Analyzes implications of interest rate changes, substantiating claims
Analyzes implications of interest rate changes, but response or substantiation is cursory or illogical
Does not analyze implications of interest rate changes
30
Macroeconomic Items: Stock Market
Assesses the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable, supporting response with evidence
Assesses the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable, but response is cursory, illogical, or weakly supported
Does not assess the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable
30
Macroeconomic Items: External Factor
Analyzes the impact of a factor external to the company on the company’s financial position, justifying reasoning
Analyzes the impact of a factor external to the company on the company’s financial position, but response is cursory, illogical, or weakly supported
Does not analyze the impact of a factor external to the company on the company’s financial position
30
Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization
Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas
Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas
10
Earned Total 100%
FIN 550 Final Project Guidelines and Rubric
Overview The final project for this course is the creation of a financial analysis report. Financial analysis involves examining historical data to gain information about the current and future financial health of a company. Financial analysis can be applied in a wide variety of situations to give business managers the information they need to make critical decisions. The ability to understand financial data is essential for any business manager. For this summative assessment, you will provide a financial analysis report for Home Depot Inc. based on the data in the case study provided (see link in prompt). You will be asked to take the topics that you have covered throughout the course and display your mathematical and conceptual mastery of them. You will conduct background calculations and provide managerial analysis for the following topics: time value of money, stock valuation, bond valuation, and capital budgeting. The project is divided into four milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Two, Four, Six, and Seven. The final submission will be in Module Nine. In this assignment, you will demonstrate your mastery of the following course outcomes:
Predict the effects of the time value of money on potential investments for ensuring an effective portfolio balance between risk and return
Assess the stock valuation process as a viable financing and investment option for maximizing shareholder value
Assess the bond issuance process for its viability as a financing option for raising adequate capital
Forecast the feasibility of corporate investment opportunities by utilizing capital budgeting estimates for ensuring effective decision making
Analyze macroeconomic variables that impact corporate financial decision making for ensuring alignment with strategic objectives
Prompt Using this case study, prepare a financial analysis report for Home Depot Inc. For your calculations, use the Final Project Student Workbook, which includes tabs specific to each milestone. Be sure to include in your analysis the background calculations and managerial analysis for each of the following topics: time value of money, stock and bond valuation, and capital budgeting. Also include a discussion of macroeconomic variables that might impact the company’s financial decision making and strategic objectives. Note that while these elements may seem separate and unrelated, together they will present a well-rounded view of the company’s finances with regard to the topics.
Specifically, you must address the critical elements listed below. Most of the critical elements align with a particular course outcome (shown in brackets).
I. Time Value of Money A. Calculate the following time value of money figures:
1. Calculate the present value of the company based on the given interest rate and expected revenues over time. 2. Suppose the risk of the company changes based on an internal event. Recalculate the present value of the company. 3. Suppose that a potential buyer has offered to buy this company in five years. Based on the present value you calculated above, what
would be a reasonable amount for which the company should be sold at that future time? B. What are the implications of the change in present value based on risk? In other words, what does the change mean to the company, and how
would you, as a financial manager, interpret it? Be sure to justify your reasoning. C. Based on the future value of the company that you calculated, and being mindful of the need to effectively balance portfolio risk with return,
what recommendation would you make about purchasing the company as an investment at that price? Be sure to substantiate your reasoning.
II. Stock Valuation A. Based on the figures provided, calculate each of the following:
1. The new dividend yield if the company increased its dividend per share by 1.75 2. The dividend yield if the firm doubled its outstanding shares 3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above
B. What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning.
C. To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.
III. Bond Issuance
A. Assuming this company already has bonds outstanding, calculate the following: 1. The new value of the bond if overall rates in the market increased by 5% 2. The new value of the bond if overall rates in the market decreased by 5% 3. The value of the bond if overall rates in the market stayed exactly the same
B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning.
C. To what extent do you feel the company’s bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate your claims.
IV. Capital Budgeting Data A. Suppose the company is considering a potential investment project to add to its portfolio. Calculate the following items:
1. The net present value (NPV) of the project 2. The internal rate of return (IRR) of the project
B. What are the implications of these calculations? In other words, based on each of the calculations, and being mindful of the need to balance portfolio risk with return, would you recommend that the company pursue the investment? Why or why not? Be sure to substantiate your claims.
C. What is the difference between NPV and IRR? Which one would you choose for evaluating a potential investment and why? Be sure to support your reasoning with evidence.
V. Macroeconomic Items: The CEO of the company is convinced that financial analysis should hinge only on what is happening internally within the
company. Convince him otherwise based on the following: A. Analyze the implications of interest rate changes on any of the calculations you performed. Be sure to substantiate your claims. B. How might an issue (negative or positive) within the overall stock market impact the company’s stock valuation numbers, other financial
variables, or its overall portfolio management? Be sure your response is supported by evidence.
C. Analyze the impact of any external factor (i.e., external to the company) discussed throughout the course on the company’s financial position. Be sure to justify your reasoning.
Milestones Milestone One: Time Value of Money (Section I) In Module Two, you will submit a draft of the Time Value of Money section of the final project, along with your supporting explanations. Submit your calculations on the designated tab of the Final Project Student Workbook and your supporting explanations as a Microsoft Word document. This milestone will be graded with the Milestone One Rubric. Milestone Two: Stock Valuation and Bond Issuance (Sections II and III) In Module Four, you will submit a draft of the Stock Valuation and Bond Issuance sections of the final project, along with your supporting explanations. Submit your calculations on the designated tab of the Final Project Student Workbook and your supporting explanations as a Microsoft Word document. This milestone will be graded with the Milestone Two Rubric. Milestone Three: Capital Budgeting Data (Section IV) In Module Six, you will submit a draft of the Capital Budgeting Data section of the final project, along with your supporting explanations. Submit your calculations on the designated tab of the Final Project Student Workbook and your supporting explanations as a Microsoft Word document. This milestone will be graded with the Milestone Three Rubric.
Milestone Four: Macroeconomic Items (Section V) In Module Seven, you will submit a draft of the Macroeconomic Items section of the final project, along with your supporting explanations. Submit your calculations on the designated tab of the Final Project Student Workbook and your supporting explanations as a Microsoft Word document. This milestone will be graded with the Milestone Four Rubric. Final Project Submission: Financial Analysis Report In Module Nine, you will submit your financial analysis report along with your completed Final Project Student Workbook. It should be a complete, polished artifact containing all of the critical elements of the final project. It should reflect the incorporation of feedback gained throughout the course. This submission will be graded with the Final Project Rubric.
Deliverables
Milestone Deliverable Module Due Grading
One Time Value of Money (Section I) Two Graded separately; Milestone One Rubric
Two Stock Valuation and Bond Issuance (Sections II and III)
Four Graded separately; Milestone Two Rubric
Three Capital Budgeting Data (Section IV) Six Graded separately; Milestone Three Rubric
Four Macroeconomic Items (Section V) Seven Graded separately; Milestone Four Rubric
Final Project Submission: Financial Analysis Report Nine Graded separately; Final Project Rubric
Final Project Rubric Guidelines for Submission: Your financial analysis report should be 7 to 12 pages, not including a title page and references page. It should use 12-point Times New Roman font, double spacing, and one-inch margins. All citations and references should be formatted according to APA style. Also submit your completed Final Project Student Workbook.
Critical Elements Exemplary Proficient Needs Improvement Not Evident Value
Time Value of Money: Figures
[FIN-550-01]
Accurately calculates requested figures (100%)
Calculates figures, but with gaps in accuracy or detail (70%)
Does not calculate figures (0%) 6.33
Time Value of Money: Implications [FIN-550-01]
Meets “Proficient” criteria and demonstrates keen insight into the interrelationship between risk and present value (100%)
Analyzes implications of change in present value based on risk, justifying reasoning (90%)
Analyzes implications of change in present value based on risk, but response or reasoning is cursory or illogical (70%)
Does not analyze implications of change in present value based on risk (0%)
6.33
Time Value of Money: Future Value [FIN-550-01]
Meets “Proficient” criteria and demonstrates keen insight into using time value of money for recommending investments (100%)
Makes recommendation about purchasing company at future price, substantiating claims (90%)
Makes recommendation about purchasing company at future price, but response or substantiation is cursory or illogical (70%)
Does not make recommendation about purchasing company at future price (0%)
6.33
Stock Valuation: Calculations [FIN-550-02]
Accurately calculates requested figures (100%)
Calculates figures, but with gaps in accuracy or detail (70%)
Does not calculate figures (0%) 6.33
Stock Valuation: Shareholder Value
[FIN-550-02]
Meets “Proficient” criteria and demonstrates keen insight into the effects of changing financial variables on shareholder value (100%)
Analyzes the effects of each calculation on shareholder value, justifying reasoning (90%)
Analyzes the effects of each calculation on shareholder value, but response or reasoning is cursory or illogical (70%)
Does not analyze the effects of each calculation on shareholder value (0%)
6.33
Stock Valuation: Dividend Policies
[FIN-550-02]
Meets “Proficient” criteria and demonstrates keen insight into the relationship between dividend policies and strategies for increasing shareholder value (100%)
Assesses the extent to which dividend policies support or hinder company strategies, justifying reasoning (90%)
Assesses the extent to which dividend policies support or hinder company strategies, but response or reasoning is cursory or illogical (70%)
Does not assess the extent to which dividend policies support or hinder company strategies (0%)
6.33
Bond Issuance: Bonds [FIN-550-03]
Accurately calculates requested figures (100%)
Calculates figures, but with gaps in accuracy or detail (70%)
Does not calculate figures (0%) 6.33
Bond Issuance: Raising Capital
[FIN-550-03]
Meets “Proficient” criteria and demonstrates keen insight into the effects of changing market conditions on decisions to raise capital (100%)
Analyzes the effects of each calculation on the company’s decision to raise capital, justifying reasoning (90%)
Analyzes the effects of each calculation on the company’s decision to raise capital, but response or reasoning is cursory or illogical (70%)
Does not analyze the effects of each calculation on the company’s decision to raise capital (0%)
6.33
Bond Issuance: Bond Issuance Policies
[FIN-550-03]
Meets “Proficient” criteria and demonstrates keen insight into the relationship between bond issuance policies and strategies for raising capital (100%)
Assesses the extent to which bond issuance policies support or hinder company strategies, justifying reasoning (90%)
Assesses the extent to which bond issuance policies support or hinder company strategies, but response or reasoning is cursory or illogical (70%)
Does not assess the extent to which bond issuance policies support or hinder company strategies (0%)
6.33
Capital Budgeting Data: Potential Investment
[FIN-550-04]
Accurately calculates requested figures (100%)
Calculates figures, but with gaps in accuracy or detail (70%)
Does not calculate figures (0%) 6.33
Capital Budgeting Data: Pursuing the Investment [FIN-550-04]
Meets “Proficient” criteria and demonstrates keen insight into using NPV and IRR to judge potential investment opportunities (100%)
Analyzes the implications of each calculation on the recommendation to pursue the investment, substantiating claims (90%)
Analyzes the implications of each calculation on the recommendation to pursue the investment, but response or substantiation is cursory or illogical (70%)
Does not analyze the implications of each calculation on the recommendation to pursue the investment (0%)
6.33
Capital Budgeting Data: Difference
[FIN-550-04]
Meets “Proficient” criteria and demonstrates keen insight into using NPV and IRR to judge potential investment opportunities (100%)
Accurately characterizes the difference between NPV and IRR and explains which would be chosen for evaluating a potential investment and why, supporting reasoning with evidence (90%)
Characterizes the difference between NPV and IRR and explains which would be chosen for evaluating a potential investment and why, but response is cursory or inaccurate or evidence is not supportive (70%)
Does not characterize the difference between NPV and IRR and does not explain which would be chosen for evaluating a potential investment and why (0%)
6.33
Macroeconomic Items: Implications [FIN-550-05]
Meets “Proficient” criteria and demonstrates keen insight into the relationship between interest rate changes and financial variables in a company (100%)
Analyzes implications of interest rate changes, substantiating claims (90%)
Analyzes implications of interest rate changes, but response or substantiation is cursory or illogical (70%)
Does not analyze implications of interest rate changes (0%)
6.33
Macroeconomic Items: Stock Market [FIN-550-05]
Meets “Proficient” criteria and demonstrates keen insight into the relationship between stock market fluctuations and financial variables in a company (100%)
Assesses the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable, supporting response with evidence (90%)
Assesses the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable, but response is cursory, illogical, or weakly supported (70%)
Does not assess the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable (0%)
6.33
Macroeconomic Items: External Factor
[FIN-550-05]
Meets “Proficient” criteria and demonstrates keen insight into the relationship between external factors and a company’s financial position (100%)
Analyzes the impact of a factor external to the company on the company’s financial position, justifying reasoning (90%)
Analyzes the impact of a factor external to the company on the company’s financial position, but response is cursory, illogical, or weakly supported (70%)
Does not analyze the impact of a factor external to the company on the company’s financial position (0%)
6.33
Articulation of Response
Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy to read format (100%)
Submission has no major errors related to citations, grammar, spelling, syntax, or organization (90%)
Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas (70%)
Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas (0%)
5.05
Earned Total 100%
1 Time Value of Money
| Milestone One: Time Value of Money (please fill in shaded YELLOW cells, row 6D - 6H) | Explanations: | |||||||||
| Interest Rate | 8% | FCF (Free Cash Flow) is the net change in cash generated by the operations of a business during a reporting period, minus cash outlays for working capital, capital expenditures, and dividends during the same period. FCF is a strong indicator of the ability of an entity to remain in business. Note: For this part of the Milestone, please use page 43 -capital lease payments under property. | ||||||||
| FCF1 | FCF2 | FCF3 | FCF4 | FCF5 | ||||||
| Amounts* | 1006 | 928 | 845 | 739 | 658 | |||||
| Pv* | (931.48) | ($795.61) | ($670.79) | ($543.19) | ($447.82) | |||||
| Total Pv* | (3388.89) | |||||||||
| *In millions | Interest Rate (given) - in our scenario we will use 8% interest rate. This rate is an implicit rate, the average rate that lease consumers face on the current market. | |||||||||
| Pv=FVN/(1+I)^N | PV(I,N,0,FV) |
2 Stock and Bond Valuation
| Milestone Two: Stock Valuation and Bond Issuance (please fill in the shaded YELLOW cells) | Explanations: | |||||||||
| Cash Dividend - distribution of the corporate income. They are not expenses and do not appear on Income Statement. Note: Part of Statement of Cash Flows. Please be aware that corporation list 5 years worth of dividends, but only 3 years worth of dividend yields (Hint: research F-1). | ||||||||||
| PART I: STOCK VALUATION | ||||||||||
| Dividend from Financial Statements: | ||||||||||
| Year | Cash Div/share ($) | Dividend Yield | Stockholder's Equity (in millions) | Stock Price | Dividend Yield - annual cash dividend per share of common stock divided by the market price of a share of the common stock (Dividend yield = Annual Dividend/Current Stock Price). Note: Current Stock Price is not part of the Financial Statements - calculated using the formula for Dividend Yield | |||||
| 2012 | 1.16 | 3.28% | 17,898 | 35.32 | ||||||
| 2013 | 1.56 | 6.44% | 17,777 | 24.23 | ||||||
| 2014 | 1.88 | 4.79% | 12,522 | 39.26 | ||||||
| 1. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75 | ||||||||||
| Year | Cash Div/Share ($) +1.75 | Dividend Yield | Stockholder's Equity (in millions) | Stock Price | Stockholder's Equity = Assets - Liabilities. Equity represents the ownership of a corporation. Owners are called stockholders because they hold stocks or shares of the company. The goal of every corporate manager is to generate shareholder value. | |||||
| 2012 | 2.91 | 8.24% | 17,898 | 35.32 | ||||||
| 2013 | 3.31 | 13.66% | 17,777 | 24.23 | ||||||
| 2014 | 3.63 | 9.25% | 12,522 | 39.26 | ||||||
| 2. The dividend yield if the firm doubled it's outstanding shares | Return on Equity - for this part we will modify and use return on investment instead. Using the formula: Dividend (+1.75)/+[(new price-old price)/old price] Note - for this part, you will need extra price from 2011 | |||||||||
| Year | Cash Div/Share ($) | Dividend Yield | Stockholder's Equity (in millions) -doubled | Stock Price | ||||||
| 2012 | 0.58 | 1.64% | 35,796 | 35.32 | ||||||
| 2013 | 0.78 | 3.22% | 35,554 | 24.23 | ||||||
| 2014 | 0.94 | 2.39% | 25,044 | 39.26 | ||||||
| Bonds are a long-term debt for corporations. In buying a bond, the bond-owner lends money to the corporation. The borrower promises to pay specified interest rate during the loan's lifetime and at the maturity, payback the entire principle. In case of bankruptcy, bondholders have priority over stockholders for any payment distributions. Bonds = Debt...............Bondholders = Lenders Stock=Equity................Stockholders = Owners | ||||||||||
| 3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above | ||||||||||
| Year | Cash Div/Share ($) +1.75 | Stock Price | Return on Investment | |||||||
| 2012 | 2.91 | 35.32 | ||||||||
| 2013 | 3.31 | 24.23 | 3.00% | |||||||
| 2014 | 3.63 | 39.26 | 4.25% | |||||||
| Calculation: Please note that for bond calculations, only one bond is used and we assume February 1, 2015 is the origination date. The value on financial statements will be considered PV (Present value). Maturity date is assumed for February 2036 and payment schedule adjusted to February 1 and August 1. The following Senior-Note was used from page 44: 5.875% Senior Notes; due December 16, 2036; interest payable semi-annually on June 16 and December 16 PV (Present Value) = 2,963 million Our scenario: 5.875% Senior Notes; due February 1, 2036; interest payable semi-annually on February 1 and August 1 PV (Present Value) = 2,963 million | ||||||||||
| PART II: BOND ISSUANCE | ||||||||||
| Curent Bonds from Financial Statements | ||||||||||
| Present Value | PV | ($2,963) | ||||||||
| Periods | N | 40 | Semi-annual payment: 2036-2016 = 20 years *2 = 40 periods | |||||||
| Interest | I | 2.9375 | Interest paid semi-annually: 5.875%/2 = 2.9375% | |||||||
| Payments | PMT | 0 | This bond does not make regular PMT except for interest | |||||||
| Future Value | FV | $9,433.58 | CALCULATING FV (please see help on the right hand side) | |||||||
| 1. The new value of the bond if overall rates in the market increased by 5% | ||||||||||
| Present Value | PV | ($2,963) | ||||||||
| Periods | N | 40 | ||||||||
| Interest | I | 5.4375 | Please adjust interest | 5.875%+5% = 10.875%/2 = 5.4375% | ||||||
| Payments | PMT | 0 | FV (Future Value Calculation) - using Excel Formula | |||||||
| Future Value | FV | $24,634.04 | CALCULATING FV (please see help on the right hand side) | Step 1) Select Formulas | ||||||
| Step 2) Click on Financial | ||||||||||
| Step 3) Select FV - you will see the formula below | ||||||||||
| 2. The new value of the bond if overall rates in the market decreased by 5% | Step 4) Enter the following: | |||||||||
| Rate - enter as decimal, no % sign. Example: 4% as 0.04 | ||||||||||
| Present Value | PV | ($2,963) | Nper - number of period. Enter a whole number. Example 50 | |||||||
| Periods | N | 40 | Pmt - payment. Our example does not assume regular payments disbursing principal | |||||||
| Interest | I | 0.4375 | Please adjust interest | 5.875%-5% = 0.875%/2 = 0.4375% | Pv - Present value. Enter as negative. Example $1,000 should be -1000 | |||||
| Payments | PMT | 0 | Type - leave blank | |||||||
| Future Value | FV | $3,528.32 | CALCULATING FV (please see help on the right hand side) | |||||||
| 3. The value of the bond if overall rates in the market stayed exactly the same | ||||||||||
| - identical to CURRENT BOND VALUE from Financial Statements |
3 Capital Budgeting Data
| Milestone Three: Capital Budgeting Data (please fill in the shaded YELLOW cells) | |||||||||||||
| WACC | 8% | Capital Budgeting Example Set-up | ACCEPT | ||||||||||
| Initial investment $65,000,000 | REJECT | ||||||||||||
| Straight-line Depreciation of 20% | |||||||||||||
| Initial Outlay | CF1 | CF2 | CF3 | CF4 | CF5 | Income Tax @35% | |||||||
| ($65,000,000) | WACC of 8% approximately. (HD WACC was about 8.83%) | ||||||||||||
| Cash Flows (Sales) | $50,000,000 | $45,000,000 | $65,500,000 | $55,000,000 | $25,000,000 | Cash Flow (which in this case are Sales Revenues) are as follows: | |||||||
| - Operating Costs (excluding Depreciation) | $38,500,000 | $38,500,000 | $38,500,000 | $38,500,000 | $38,500,000 | CF1: $50,000,000 | |||||||
| - Depreciation Rate of 20% | (13,000,000) | (13,000,000) | (13,000,000) | (13,000,000) | (13,000,000) | CF2: $45,000,000 | |||||||
| Operating Income (EBIT) | 24,500,000 | 19,500,000 | 40,000,000 | 29,500,000 | (500,000) | CF3: $65,500,000 | |||||||
| - Income Tax (Rate 35%) | 8,575,000 | 6,825,000 | 14,000,000 | 10,325,000 | (175,000) | CF4: $55,000,00 | |||||||
| After-Tax EBIT | 15,925,000 | 12,675,000 | 26,000,000 | 19,175,000 | (325,000) | CF5: $25,000,000 | |||||||
| + Depreciation | 13,000,000 | 13,000,000 | 13,000,000 | 13,000,000 | 13,000,000 | Operating Costs | |||||||
| Cash Flows | ($65,000,000) | 28,925,000 | 25,675,000 | 39,000,000 | 32,175,000 | 12,675,000 | CF1: $25,500,000 | ||||||
| CF2: $25,500,000 | |||||||||||||
| Select from drop downs below: | CF3: $25,500,000 | ||||||||||||
| NPV | ($21,453,688.38) | REJECT | CF4: $25,500,000 | ||||||||||
| CF5: $25,500,000 | |||||||||||||
| IRR | 34% | ACCEPT | |||||||||||
| WACC- why do we use WACC rate for new projects? If the project doesn’t earn more percent than WACC, the corporation should abandon the project and invest money elsewhere. | |||||||||||||
| Initial Investment - always negative. Corporation has to invest money ("lose" it till they recover it via sales) in order to gain future benefit. | |||||||||||||
4 Interest Rate Implications
| Milestone Four: Interest Rate Implication (please fill in shaded YELLOW cells) | Explanation: | ||||||||
| We will use Milestone 1 and Time Value of Money for Milesotne 4 analysis | |||||||||
| 1. Original Scenario from Milestone 1 - Time Value of Money using 8% | |||||||||
| Two cases will be analyzed: | |||||||||
| Interest Rate | 8.00% | Lower Interest Rate at 5% | |||||||
| Higher Interest Rate at 15% | |||||||||
| FCF1 | FCF2 | FCF3 | FCF4 | FCF5 | |||||
| Amounts* | 113 | 111 | 108 | 101 | 97 | ||||
| Pv* | (104.63) | (95.16) | (85.73) | (74.24) | (66.02) | ||||
| Total Pv* | (425.78) | ||||||||
| *In millions | |||||||||
| 2. Change in interest rate and its implications - Lower Interest Rate (5%) | |||||||||
| Interest Rate | 5.00% | ||||||||
| FCF1 | FCF2 | FCF3 | FCF4 | FCF5 | |||||
| Amounts* | 113 | 111 | 108 | 101 | 97 | ||||
| Pv* | (107.62) | (100.68) | (93.29) | (83.09) | (76.00) | ||||
| Total Pv* | (460.69) | ||||||||
| *In millions | |||||||||
| 3. Change in interest rate and its implications - Higher Interest Rate (15%) | |||||||||
| Interest Rate | 15.00% | ||||||||
| FCF1 | FCF2 | FCF3 | FCF4 | FCF5 | |||||
| Amounts* | 113 | 111 | 108 | 101 | 97 | ||||
| Pv* | (98.26) | (83.93) | (71.01) | (57.75) | (48.23) | ||||
| Total Pv* | (359.18) | ||||||||
| *In millions |
SUMMARY
| SUMMARY TAB | Note: This process could take up to 20 seconds | |||||||||||||
| TAB 1 | 1. Time Value of Money | TAB 3 | Capital Budgeting | |||||||||||
| 1006 | 928 | 845 | 739 | 658 | ||||||||||
| ($65,000,000) | ||||||||||||||
| $50,000,000 | $45,000,000 | $65,500,000 | $55,000,000 | $25,000,000 | ||||||||||
| FALSE | FALSE | FALSE | FALSE | FALSE | $38,500,000 | $38,500,000 | $38,500,000 | $38,500,000 | $38,500,000 | |||||
| TAB 2 | PART I - Stock Valuation | FALSE | $9,785,570.71 | |||||||||||
| FALSE | 50% | |||||||||||||
| 1.16 | 3.28% | 17,898 | TRUE | TAB 4 | Interest Rate Implication | |||||||||
| 1.56 | 6.44% | 17,777 | TRUE | |||||||||||
| 1.88 | 4.79% | 12,522 | TRUE | |||||||||||
| PART II - Bond Issuance | ||||||||||||||
| Current Bond Value | FALSE | |||||||||||||
| $9,433.28 | FALSE | $9,433.58 | ||||||||||||
| New Value +5% | FALSE | |||||||||||||
| 5.4375 | TRUE | 5.4375 | ||||||||||||
| $24,634.04 | FALSE | $24,634.04 | ||||||||||||
| New Value - 5% | ||||||||||||||
| 0.4375 | TRUE | 0.4375 | ||||||||||||
| $3,528.32 | FALSE | $3,528.32 |
RUN Summary
CLEAR DATA
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