Time Value Of Money: Annuity Cash Flow

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Overview

Respond to four questions and solve three computational problems about time value of money (TMV) as it applies to annuity cash flows.

You know how the TVM concept as applies to single cash flow. However, in real life you will come across financial applications that require multiple or annuity cash flows. That is why it is important to know how to apply the TVM concept to annuity cash flows; for example, how to amortize a mortgage or car loan.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

· Competency 1: Evaluate the global financial environment.

. Explain why a saver would prefer more or less frequent interest compounding periods.

. Explain the purpose of an amortization schedule.

· Competency 2: Define finance terminology and its application within the business environment.

. Describe uses of an amortization schedule.

. Explain why interest paid in the early years of a home mortgage is more helpful in reducing taxes than interest paid in later years.

. Explain the differences between an ordinary annuity and an annuity due.

Suggested Resources

The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.

Library Resources

The following e-books or articles from the Capella University Library are linked directly in this course:

· Weaver, S. C., & Weston, J. F. (2001).  Finance and accounting for nonfinancial managers . New York, NY: McGraw-Hill.

· Sherman, E. H. (2011).  Finance and accounting for nonfinancial managers  (3rd ed.). New York, NY: American Management Association.

 

Course Library Guide

A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the BUS-FP3062 – Fundamentals of Finance Library Guide to help direct your research.

Bookstore Resources

The resources listed below are relevant to the topics and assessments in this course and are not required. Unless noted otherwise, these materials are available for purchase from the Capella University Bookstore. When searching the bookstore, be sure to look for the Course ID with the specific –FP (FlexPath) course designation.

· Cornett, M., Adair, T., & Nofsinger, J. (2016). M: Finance (3rd ed.). New York, NY: McGraw-Hill.

 

Instructions

Respond to the questions and complete the problems.

Questions

In a Word document, respond to the following. Number your responses 1–4.

1. Explain whether you would you rather have a savings account that paid interest compounded on a monthly basis or compounded on an annual basis? Why?

2. Describe what an amortization schedule is and its uses. Explain the purpose of an amortization schedule.

3. Interest on a home mortgage is tax deductible. Explain why interest paid in the early years of a home mortgage is more helpful in reducing taxes than interest paid in later years.

4. Explain the difference between an ordinary annuity and an annuity due.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

Problems

In either a Word document or Excel spreadsheet, complete the following problems.

· You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.

· If you choose to solve the problems algebraically, be sure to show your computations.

· If you use a financial calculator, show your input values.

· If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

1. If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.

. Recalculate the future value at 6 percent interest and 9 percent interest.

· If interest rates are 5 percent, what is the present value of a $900 annuity payment over three years? Unless otherwise directed, assume annual compounding periods.

. Recalculate the present value at 10 percent interest and 13 percent interest.

· What is the present value of a series of $1150 payments made every year for 14 years when the discount rate is 9 percent?

. Recalculate the present value using discount rate of 11 percent and 12 percent.

Stocks Valuation

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Respond to three questions and solve five computational problems related to stocks.

Companies can raise money through common stocks. Investors buy stocks and get the benefits of ownership of a firm. How to price stocks is the main objective of this assessment, in which you will learn about the differences between common and preferred stocks, the different stock valuation models, and the major stock market indexes.

Overview

Respond to three questions and solve five computational problems related to stocks.

Companies can raise money through common stocks. Investors buy stocks and get the benefits of ownership of a firm. How to price stocks is the main objective of this assessment, in which you will learn about the differences between common and preferred stocks, the different stock valuation models, and the major stock market indexes.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

· Competency 1: Evaluate the global financial environment.

. Calculate how much money is needed to buy a specific amount of stock.

. Describe the advantages of stock ownership.

· Competency 2: Define finance terminology and its application within the business environment.

. Calculate the price of a share of stock using a stock’s earnings per share and P/E ratio.

. Calculate the value of a share of stock with constant growth.

. Calculate the value of a share of preferred stock.

. Explain the differences between key stock market measures.

. Calculate the percentage one-day return in the Dow Jones Industrial Average.

· Competency 3: Evaluate the financial health of an organization.

. Describe the rights of a shareholder.

Suggested Resources

The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.

Library Resources

The following e-books or articles from the Capella University Library are linked directly in this course:

· Weaver, S. C., & Weston, J. F. (2001).  Finance and accounting for nonfinancial managers . New York, NY: McGraw-Hill.

· Sherman, E. H. (2011).  Finance and accounting for nonfinancial managers  (3rd ed.). New York, NY: American Management Association.

Course Library Guide

A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the  BUS-FP3062 – Fundamentals of Finance Library Guide  to help direct your research.

Bookstore Resources

The resources listed below are relevant to the topics and assessments in this course and are not required. Unless noted otherwise, these materials are available for purchase from the  Capella University Bookstore . When searching the bookstore, be sure to look for the Course ID with the specific –FP (FlexPath) course designation.

· Cornett, M., Adair, T., & Nofsinger, J. (2016). M: Finance (3rd ed.). New York, NY: McGraw-Hill.

Instructions

Respond to the questions and complete the problems.

Questions

In a Word document, respond to the following. Number your responses 1–3.

1. Describe the rights and advantages belonging to shareholders

2. Explain the differences between the Standard and Poor’s 500 Index and the Dow Jones Industrial Average. Which is a better measure of stock market performance? Why?

3. Describe the differences between common stock and preferred stock.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

Problems

In either a Word document or Excel spreadsheet, complete the following problems.

· You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.

· If you choose to solve the problems algebraically, be sure to show your computations.

· If you use a financial calculator, show your input values.

· If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

Compute the following:

1. Imagine that on June 4, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day’s close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4.

2. The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22.

3. HiTech, Inc.’s growth for the future is forecasted to be a constant 10 percent. HiTech’s next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent.

4. Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent.

5. HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price.

What are some of the issues that ensued as these two constituencies worked side-by-side in the new Dayton, OH factory?

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Watch the entire movie American Factory (Directed by Julia Reichert and Steven Bognar).  Provide proof that you acquired and watched the movie by providing me with a screen shot or photo of the movie at 30:00 minutes into the film, and at 1:30:00 into the film.

 

  • a 500-word (APA) paper responding to these prompts:
    1. In your own words, how would you describe the culture of the US-born workers employed to work in the Fuyao factory?
    2. How would you describe the culture of the Chinese-born workers and management who were brought to Ohio by the new owners to work in – and manage – the Fuyao factory?
    3. What are some of the issues that ensued as these two constituencies worked side-by-side in the new Dayton, OH factory?
    4. Consider at least one additional OB concept from this course, and discuss how it relates to the situation in this movie.
    5. What did you learn about organizations from watching this film?

Strategic Financial Management

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You have recently attended a workshop aimed at improving your understanding of company Annual Reports using Tesco’s report as an example.

 

During the workshop you looked at the following sections of Tesco’s annual report:

The Strategic Report including the Environmental and Social Review,

The Corporate Governance Report and,

The Group Statements of: ‘Income’ (also sometimes referred to as the Statement of Profit and Loss) ‘Balance Sheet’ and ‘Cash-Flows’.

 

You learned about how different ‘stakeholders’ may use the information contained in these reports and financial statements. You also learned about financial ratios and how these can be used to interpret and assess the performance of a business in terms of its profitability, liquidity, efficiency and return to investors.

 

The timing of the workshop was very fortuitous. You are the Purchasing Manager for the business you work for. You are in the process of letting a contract for the supply of an important component used in your business’s production. You have been provided with the financial statements of Benedict Co. who are one of a few companies tendering for the contract. The income statement and statement of financial position have been reproduced below.

 

As well as reviewing the financial statements of Benedict Co. from a potential customer perspective, you are interested in how the company may be viewed by potential investors, lenders and suppliers.

 

You have also collected the following information about other companies operating in the same sector as Benedict Co.:

 

Current ratio: 1.6

Quick ratio: 1.0

Trade receivable days: 55 days

Inventory days: 60 days

Trade payable days: 90 days

 

 

 

 

 

Dividends of $4.5 million were paid in 20X1 and $3.6 million in 20X0. Shares in Benedict Co. had a market value of $5.60 at 31 January 20X1 compared to $3.60 in 20X0. Benedict Co. has issued 18 million $1 shares.

 

 

 

Required:

Prepare a report for your manager which:

 

1) Using the Annual Report of Tesco available at the following link:

 

https://www.tescoplc.com/media/264194/annual-report-2016.pdf

 

a) Explains the term ‘stakeholder’ and identifies three types of stakeholder of Tesco. (15%)

 

b) Analyses how the Environmental and Social Review and the Corporate Governance Report help Tesco demonstrate its performance in terms of its corporate and social responsibilities to two of the stakeholders identified in a) above.

(35%)

 

2) Analyses and evaluates the financial position of Benedict Co. using a range of financial ratios to meet the requirements of potential customers, investors, lenders and suppliers. Your analysis should:

 

a) Explain the purpose and relevance of the chosen ratios.

b) Include the results for each chosen ratio and reasons for the movement between the two years.

c) Highlight any aspects of the performance of Benedict Co. which would give cause for concern.

d) Critically evaluate the application of financial ratios in interpreting and measuring the performance of a company.

 

All calculations should be shown in full as an appendix to the report.

(40%)

 

Marks are available for the presentation of your report including structure, style and the presentation of referencing.

(10%)

 

Total 100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assessment guidance

Your report should be word processed, clearly laid out and concise and should be supported by appropriate workings for the numerical elements. The word limit for the report is 3,000 words.

The text of this assignment must be in your own words (not even a sentence or phrase should be taken from another source unless this source is referenced and th