The personal importance/meaning of the landscape

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Identify a favorite landscape. Describe it and explain the personal importance/meaning of the landscape. Reflect deeper on this favorite landscape by creating a Microsoft Word document with text and two pictures on it. One picture should speak to your connection with the landscape and the other should resonate less with you. If you are unable to find pictures of the landscape online, find ones that are similar. Describe how this single landscape could be meaningful to you in certain ways but not in other ways. Also, describe which picture speaks more to your connection, and explain why the pictures elicit different reactions from you.

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FINANCING AND OPTIONS CONTRACT

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Jeff Warren, the CFO and the board of directors of Baldwin Inc. have taken enough time to discuss capital budgeting, dividend policy, and capital structure and now want to focus their attention on short-term finance and cash planning of the company. The board is considering the ways to improve the working capital management of the company. They are also discussing various sources of short-term financing and the minimum amount of money to borrow in the short-term to finance inventory and accounts receivable associated with sales growth. Jeff opened the meeting with the statement that the company must investigate its cash cycle and find ways to improve it because he has noticed a deterioration in the cash flow management of the firm.

Jeff was worried that the inventory period of the company has increased from 70 days in the previous year to 80 days in the current year and the accounts receivable period has also increased from 47 days in the previous year to 55 days in the current year whilst the accounts payable period remains the same at 52 days. He explained that if the two components of cash cycle i.e., operating cycle and accounts payable period are not improved, the company might need to borrow $5.5 million short-term next year to fill the gap between short-term cash inflows and cash outflows.

Jeff presented to the board the following ratios to show how the company has performed over the past two years:

Exhibit 1: Asset Utilization Ratios of Baldwin Inc.

Asset Utilization Ratios

2019

2020

Inventory turnover

5.14 times

4.5 times

Inventory period

70 days

80 days

Accounts Receivable period

47 days

55 days

Accounts Payable period

52 days

52 days

Operating cycle

117 days

?

Cash cycle

65 days

?

The Credit manager of the company, Josh Waters explained that the company can change some aspects of its short-term financial policy and find alternative financing policies to fund current assets to improve its working capital management. Another board member, Jacky Jackson was of the view that cash budget is a primary tool of short-term financial planning that can be used to improve the cash management of Baldwin Inc. She believed that having short-to-medium term cash budget for the next five years can help the company identify its short-term financial needs or opportunities and the required amount needed to borrow for the next five years. In that way the company will be able to arrange for short-term finance in advance to reduce the risk of cash shortages. With the expected improvement in current asset management of the company, some investors believe that the company’s stock price will increase. One investor, Desmond Clinton is of the opinion that buying a call option on the stock will give him the right to purchase more of the stock of the company now at a fixed price before the price of the stock jumps up. The stock price of Baldwin is currently $25. The exercise price is $30 per share. The call option and put option on the company’s stock expires in one year.

The board is determined to improve the company’s short-term financial management policies and wants you to assist them achieve that objective.

  1. Using the ratios presented by Jeff, the board chairman wants you to calculate the following and explain what they mean to all the board members:

i). Operating cycle of the company for 2020

ii). Cash cycleof the company for 2020

  1. Given the asset utilization ratios, do you think the cash management of Baldwin Inc. has improved or worsened over the past year and why? Suggest two ways to improve the cash cycle of the company
  2. The board is concerned that the net working capital might be declining and not meet the $800,000 minimum requirement of the company. The company has a cash balance of $300,000, other current assets of $1.8 million and current liabilities of $1.3 million. Should the board worry about the company’s net working capital?
  3. The board wants to adopt a restrictive short-term financial policy to improve on its cash management. Identify three aspects of restrictive short-term financial policy the company should consider.
  4. The cash budget shows that the company will need $2.5 million to finance its working capital needs in next three years. List five sources of short-term financing the company can use to raise the money.
  5. Explain to Desmond Clinton the difference between a call option and a put option.

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Being raised by a single parent hinder the child’s ability

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To what extent Does being raised by a single parent hinder the child’s ability to be successful and emotionally stable in the future

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CAPITAL STRUCTURE AND DIVIDEND PAYOUTS

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The board of directors of Baldwin Inc. met today to discuss the capital structure and dividend policy of the company. The board discussed the optimal capital structure of 50 percent debt and 50 percent equity. Management chose this capital structure because they believe that would have the highest firm value. During the meeting it came up that debt provides tax benefits to the firm because interest is tax deductible whereas dividend is not. Therefore, the debt ratio of 50 percent was not supported by some board members. One board member, Gregg wanted the capital structure to be 70% debt and 30% equity because he believes a high debt ratio is beneficial to shareholders. However, Jeff Warren, the CFO of the company, stressed in his presentation to the board that debt can put pressure on the firm because interests and principal payments are fixed obligations that the company must pay, no matter the profit of the company. He stated that if these obligations are not met, the company may risk some sort of financial distress and files for bankruptcy. Jeff continued to explain that if the company files for bankruptcy there are direct and indirect costs that Baldwin must incur.

Mr. Milosvoski, another board member suggested that there are ways to reduce the cost of debt by hiring an expert to handle the company’s debt agreements between the shareholders and bondholders. He stated that protective covenants are incorporated as part of the loan agreement and must be taken seriously because a broken covenant can lead to default. He believed that costs of debt can be reduced with negative covenants and a positive covenant. John Miller, the Investor Relations Officer stated that one reason bankruptcy costs are so high is that different creditors and their lawyers contend with each other. He suggested that if debt can be consolidated, or if bondholders can be allowed to purchase stock of the company bankruptcy cost will be reduced. In this way, stockholders and debtholders are not pitted against each other because they are not separate entities. He cited examples in Japan where large banks generally take significant stock positions in the firms to which they lend money.

The employee representative on the board, Ms. Johnson used the agency costs to explain that when a firm has debt, conflicts of interest arise between stockholders and bondholders. Because of this, stockholders are tempted to pursue selfish strategies. These strategies are costly because they will lower the market value of the firm. Philip Suzuki, director of Marketing and a board member was of the view that determining optimal debt-equity ratio is not an easy task and varies across industries so Baldwin should follow the rules of the pecking-order theory when financing capital projects. No agreement was reached on the company’s capital structure, but the CEO and Jeff believed that the 50-50 debt-equity ratio will minimize the cost of capital and improve the value of the firm.

The board is retaining you as the financial consultant to assist with the company’s capital structure and dividend payout decisions. The Chairman of the board wants you to address the following questions:

List three advantages and two disadvantages of the 70% debt ratio proposed by Gregg.
State five examples of direct costs, indirect costs and agency costs associated with financial distress that Jeff stated in his presentation to the board.
Explain the following cost reduction techniques suggested by Mr. Milosvoski and John Miller.
positive covenant
negative covenant
debt consolidation
Explain the rules of pecking-order theory of capital structure as suggested to the board members by Mr. Suzuki, the director of Marketing. List three implications of the pecking-order theory.
Baldwin Inc. is planned to pay dividends of $3 per share to shareholders in 2020 (total dividend is $3 million). But because of high personal taxes on dividend income, the company postponed the dividend to next 5 years when they believe a new tax legislation will be passed by Congress to give tax exemption on dividend and investment income. Suggest three alternatives to the board of how the available cash can be used in place of the dividend.
Identify four factors that can support high-dividend policy to stockholders of Baldwin?
Baldwin Inc. wants you to help them prepare a dividend policy which will guide the first dividend payout of the company in 2025. List five characteristics of a sensible dividend policy you want the board to know.

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