Write a 175- to 265-word response to the following:
For this week’s project, Gerry has asked you to consider two mutually exclusive investments and incorporate risk considerations into the process of evaluation.
The Cosmo K Manufacturing Group is considering the addition of a new smelting machine or a new paving machine. The two investments are mutually exclusive; if one is selected, the other is rejected. The annual cash flows after taxes and the effects of depreciation, which begin one year from project start, and their respective probabilities are given below:
Smelting Machine
Probability Net Cash Flows per Year
0.2 $14,100.00
0.5 $16,000.00
0.2 $17,000.00
0.1 $20,000.00
Paving Machine
Probability Net Cash Flows per Year
0.2 $2,000.00
0.5 $16,000.00
0.2 $22,000.00
0.1 $33,000.00
Each project has an expected life of 4 years and will cost $45,000. The riskier project will be evaluated at the company’s WACC plus 3%, and the less risky project will be evaluated at the company’s WACC. Cosmo K has the following capital structure:
Debt: 30%
Preferred stock: 16%
Common stock: 54%
This capital structure is current and consistent with the company’s objectives and so will be used to raise any new funds. All new debt will be raised using long-term bonds, with no short-term debt being used for the new project. New bonds will have a coupon rate of 13%. The company’s common stock is currently selling for $65 per share, paid a dividend of $4.25 last year, and has an expected growth rate of 6% indefinitely. There will be no floatation costs on new common stock. Preferred stock can be sold for $90 per share and pays a dividend of $10, with a floatation cost of $2 per share. Currently, the market risk premium is 5% and the risk-free rate is 8%. Cosmo K’s beta coefficient is currently 1.23 and is expected to be consistent for the foreseeable future. The tax rate is expected to be 40% for the next decade.
Answer the following questions:
PART 1.
Discuss the reasons why nondomestic customers might not be willing to buy products and services from a firm selling in a foreign market and the reasons why nondomestic customers may not be able to buy a firm’s products and services even if they are willing. Include a brief description of how your firm (that you selected previously) would approach selling a product or service in a foreign market.
PART 2.
Describe the “rules” for bidding firm managers that were discussed in the text. How do these rules differ from the “rules” for target firm managers? Include a brief explanation of each of the rules in your answer.
PART 3.
Write a 3 to 5 page paper (750 to 1200 words, not including the cover page and reference page) in APA format in response to the prompts below. Please click here to view the criteria by which you will be assessed for the achievement of the CLO for this unit.
Please use the APA Sample provided in Unit 1 to complete your assignment. In this assignment, you will be assessed on the Institutional Learning Outcome of Quantitative Reasoning. Visit the LIRN to find journal articles that support your positions and cite them using appropriate APA format.
For this case study, use the company you previously selected. Please respond to the following questions:
a. Describe the conditions, if any, where your business (the one you selected in Unit 1) can expect to earn an economic profit from acquiring a new, strategically related, firm after fending off four other bidders. [Chapter 10 Problem Set Question #1 on page 303].
b. Your firm is considering the purchase of a smaller firm because it believes that it can manage the assets of that firm more efficiently. The smaller firm has free cash flow. Some researchers have argued that the existence of free cash flow can lead managers in a firm to make inappropriate acquisition decisions. To avoid these problems, these authors have argued that firms should increase their debt-to-equity ratio and “soak up” free cash flow through interest and principal payments. Is free cash flow a significant problem for many firms?
c. Your firm has decided to begin selling its products in Ghana. Unfortunately, there is not a highly developed trading market for currency in Ghana. However, Ghana does have significant exports of cocoa. Describe a process by which you would be able to sell your machines in Ghana and still translate your earnings into a tradable currency (e.g., dollars or euros).
1. Please post the hyperlink to one federal statute which discusses cybercrime or cybersecurity on the internet and summarize in not less than 100 words what that statute accomplishes.
2. Please post the hyperlink to one federal case which discusses cybercrime or cybersecurity on the internet and summarize in not less than 100 words what that statute accomplishes.
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