Klieman Company’s perpetual preferred stock sells for $90 per share and pays a $7.50 annual dividend per share. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the price paid by investors. What is the company’s cost of preferred stock?

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The Federal Reserve recently shifted its monetary policy, causing Lasik Vision’s WACC to change. Lasik had recently analyzed the project whose cash flows are shown below. However, the CFO wants to reconsider this and all other proposed projects in view of the Fed action. How much did the changed WACC cause the forecasted NPV to change? Assume that the Fed action will not affect the cash flows, and note that a project’s projected NPV can be negative, in which
case it should be rejected.
Old WACC = 10%
Year:
Cash flows:

New WACC = 8%
0
1
-$1,000
$500

2
$520

3
$540

Question 2
1.Johnson Industries finances its projects with 40% debt, 10% preferred stock, and 50% common stock.

The company can issue bonds at a YTM of 8.4%.
The cost of preferred stock is 9%.
The risk-free rate is 6.57%.
The market risk premium is 5%.
Johnson Industries’ beta is equal to 1.3.
Assume that the firm will be able to use retained earnings to fund the equity portion of its capital budget.
The company’s tax rate is 30%. What is the company’s WACC?

Question 3
The capital budgeting director of Sparrow Corporation is evaluating a project that costs $200,000, is expected to last for 10 years and produces after-tax cash flows, including depreciation, of $44,503 per year. If the firm’s WACC is 14% and its tax rate is 40%, what is the project’s IRR?

Question 4
An analyst has collected the following information regarding Christopher Co.:

The company’s capital structure is 70% equity and 30% debt.
The YTM on the company’s bonds is 9%.
The company’s year-end dividend is forecasted to be $0.80 a share.
The company expects a constant dividend growth rate of 9% a year.
The company’s stock price is $25.
The company’s tax rate is 40%.
The company anticipates that it will need to raise new common stock this year, and flotation costs will equal 10% of the amount issued.

Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company’s WACC.

Question 5
Klieman Company’s perpetual preferred stock sells for $90 per share and pays a $7.50 annual dividend per share. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the price paid by investors. What is the company’s cost of preferred stock?

Describe what the Capital Asset Pricing Model (CAPM) tells us and how to use it to evaluate whether the expected return of an asset is sufficient to compensate an investor for the risks associated with that asset.

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FIN 3403
1). Whitewall Tire Co. just paid a $1.60 dividend on its common shares. If Whitewall is expected to increase its annual dividend by 2 percent per year into the foreseeable future and the current price of Whitewall’s common shares is $11.66, what is the cost of common stock for Whitewall?

2). WACC for a firm: Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10 percent preferred shares, and 40 percent common shares. If the returns required by investors are 8 percent, 10 percent, and 15 percent for debt, preferred equity, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent.

3)Morgan Insurance Ltd. issued a fixed-rate perpetual preferred stock three years ago and placed it privately with institutional investors. The stock was issued at $25 per share with a $1.75 dividend. If the company were to issue preferred stock today, the yield would be 6.5 percent. The stock’s current value is

a. $25.00

b. $26.92

c. $37.31

d. $40.18
(SHOW YOUR WORK)

4) What does the WACC for a firm tell us?

5) Your boss just completed computing your firm’s weighted average cost of capital. He is relieved because he says that he can now use that cost of capital to evaluate all projects that the firm is considering for the next four years. Evaluate that statement.

6). Maltese Falcone, Inc., has not checked its weighted average cost of capital for four years. Firm management claims that since Maltese has not had to raise capital for new projects since that time, they should not have to worry about their current weighted average cost of capital since they have essentially locked in their cost of capital. Critique that statement.

7). Mike’s T-Shirts, Inc., has debt claims of $400 (market value) and equity claims of $600 (market value). If the after-tax cost of debt financing is 11 percent and the cost of equity is 17 percent, what is Mike’s weighted average cost of capital?

8). The market value of a firm’s assets is $3 billion. If the market value of the firm’s liabilities is $2 billion, what is the market value of the stockholders’ investment and why?

9). Below is a partial aging of accounts receivable for Bitar Roofing Services. Fill in the rest of the information and determine Bitar’s days’ sales outstanding. How does it compare to the industry average of 40 days?
Age of Account (days) Value of Account % of Total Value
0–10 $211,000
11–30  120,360
31–45  103,220
46–60   72,800
Over 60   23,740
Total $531,120

10) What does 4/15, net 3 mean?

11). Suppose you are a financial manager at a big firm and you expect the interest rates to decline in the near future. What current asset investment strategy would you recommend the company pursue?

12). Wolfgang’s Masonry management estimates that it takes the company 27 days on average to pay off its suppliers. It also knows that it has days’ sales in inventory of 64 days and days sales’ outstanding of 32 days. How does Wolfgang’s cash conversion cycle compare to that of an industry average of 75 days?

13). You would like to own a common stock that has a record date of Friday, September 9, 2011. What is the last date that you can purchase the stock and still receive the dividend?

14). List and define four types of dividends

15). What are the key events and dates in the dividend payment process?

16). Discuss why the dividend payment process is so much simpler for private companies than for public companies.

17). Describe what the Capital Asset Pricing Model (CAPM) tells us and how to use it to evaluate whether the expected return of an asset is sufficient to compensate an investor for the risks associated with that asset.

18) Discuss which type of risk matters to investors and why.

19) Explain the concept of diversification.

20) You must choose between investing in stock A or stock B. You have already used CAPM to calculate the rate of return you should expect to receive for each stock given their systematic risk and decided that the expected return for both exceeds that predicted by CAPM by the same amount. In other words, both are equally attractive investments for a diversified investor. However, since you are still in school and do not have a lot of money, your investment portfolio is not diversified. You have decided to invest in the stock that has the highest expected return per unit of total risk. If the expected return and standard deviation of returns for stock A are 10 percent and 25 percent, respectively, and the expected return and standard deviation of returns for stock B are 15 percent and 40 percent, respectively, which should you choose? Assume that the risk-free rate is 5 percent.

21). CSB, Inc., has a beta of 1.35. If the expected market return is 14.5 percent and the risk-free rate is 5.5 percent, what is the appropriate required return of CSB (using the CAPM)?

Who or what was the most important influence on your moral development as you were growing up? Explain how this impacted your ethical beliefs and communication with other people.

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Applying the National Communication Association Ethical Communication Credo

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The word “ethics” is written in blue with other words associated with ethics.The purpose of this activity is to discuss a primary influence in your own moral development that shaped your communication with others today.  You will examine the principles stated in the National Communication Association Credo for Ethical Communication, and discuss how these might be applied to your own principles of ethical communication. This activity aligns with module outcome 1.

In Chapter 2 of your textbook, carefully review the contributions of Lawrence Kohlberg in The Six Stages of Moral Development. Examine the factors that Kohlberg says influences our moral development. Next, review the National Communication Association Credo for Ethical Communication. Take notes on how these principles might be applied in developing your own credo for communicating ethically with others.

Answer one of the following discussion questions below.

  1. Who or what was the most important influence on your moral development as you were growing up? Explain how this impacted your ethical beliefs and communication with other people.
  2. What do you feel are the three most important principles in the NCA Credo for Ethical Communication that would also be reflected in your own personal credo for communicating ethically with others? Explain why you feel these are the most important to you.
  3. Propose one additional principle (one that isn’t already listed on the NCA Credo) that you would like to see everyone practice in their ethical communication with others.
  4. While the NCA has a credo for ethical communication, there is no discussion of enforcement of those principles. Why do you think having such a credo is still important for its membership?

Based on your research, what are the key drivers for success in the large office supply store industry? This section should be at least 2 pages in length.

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Case Assignment

To begin the Module 1 Case assignment, read the following article:

Butt, J., & Ivanov, S. (2017). Study of a large office supply retail organization: How good companies slowly go out of business. International Journal of Organizational Innovation, 9(4), 100-116. Retrieved from EBSCO – Business Source Complete.

After you read the foregoing article, visit the library, and consult IBISWorld (download the IBISWorld Academic Overview). Search for “Office Supply Stores in the U.S.” Scan through the various pages associated with the large office supply retail industry, noting key areas of opportunity, key areas required for success, and key threats. Then, in a well-written 5- to 6-page paper (not including Cover and References pages), respond to the following:

  1. Based on your research, what are the key drivers for success in the large office supply store industry? This section should be at least 2 pages in length.
  2. What were the reasons for the failure of the Fortune 500 office supply company as discussed in the Butt and Ivanov (2017) journal article? Are these reasons consistent with the reasons for organizational failure as identified by Sheth & Sisodia (2005)? What other reasons, if any, have you identified? Are there any practical difficulties that served as barriers to needed organizational change? (This section should be at least 2 pages in length).
  3. What recommendations would you have given the leadership of the foregoing Fortune 500 company relative to how the company may have avoided organizational failure? (This section should also be at least 2 pages in length).
  4. Conclude your paper by identifying the key lessons you have learned from Module 1 (as taken from both the Background materials and the Module 1 Case assignment) concerning the need for ongoing adaptation on the part of the organization and the need to avoid organizational inertia and resistance to change. This section should be at least 1 page in length.

Assignment Expectations

  1. Minimum length requirements for the Module 1 Case assignment are 5–6 pages (not including Cover and Reference pages).
  2. Be sure to cite your sources using APA Style.

Module 1 – SLP

Organizational Resistance to Change (and Why Good Companies Fail)

For the Module 1 SLP, we will continue our research into why good organizations resist change. To this extent, please visit the library, and find the following text:

Managing Change by Brown

Brown, B. B. (2002). Easy step by step guide to managing change. Havant: Crimson eBooks. Retrieved from EBSCO eBook Collection.

Read the chapter entitled “Organization barriers to change.” In this chapter, you will note several key barriers that cause organizations to resist needed change. Namely, these are:

  1. Unclear objectives;
  2. Inappropriate structures; and
  3. Poor communications.

It is important to note the author’s emphasis that any one of these factors create organization-wide resistance to change because they have become part of the organization’s status quo.

After reading the chapter “Organization barriers to change,” respond to the following in a well-written, 3-4-page paper:

Part One: Description

Think of an experience you have had with an organization that failed to change when change was needed. Describe the change and explain why the organizational change you identify was needed. Describe what negative consequences (or outcomes) resulted from the organization’s failure to enact the needed change. What were the costs to the organization (e.g., poor employee morale, loss of customers, poor company image, financial losses, etc.)?

Part Two: Application and Analysis

Apply Brown’s (2002) perspective to demonstrate how unclear objectives, inappropriate structures, or poor communications contributed to the resistance to change in this organization. In other words, explain how Brown helps us understand why the barrier you have selected caused organization-wide resistance to needed change (keep in mind that we are focused on organization-wide – and not on individual – resistance to change).

Part Three:  Solution and Recommendations

Finally, as a leader, what could you have done to avoid or minimize this resistance to change? Be specific, and be sure that your recommended actions target the barrier you identified in Part Two (e.g. unclear objectives, inappropriate structures, or poor communications). Be sure that you “connect the dots” by making a clear argument regarding how these specific recommendations would have helped the organization implement the needed change without resistance.    If the resistance to change is ongoing, what suggestions do you have for resolving this problem going forward?

SLP Assignment Expectations

  1. Minimum length requirements for the Module 1 SLP assignment are 3–4 pages (not including Cover and Reference pages).
  2. Be sure to cite your sources using APA Style.

Module 1 – Background

Organizational Resistance to Change (and Why Good Companies Fail)

Attribution:

In this course, we will be partly using the Focusing on Organizational Change text authored by William Judge. The Attribution–NonCommercial–ShareAlike license for use of this text may be viewed here: https://creativecommons.org/licenses/by-nc-sa/3.0/. No changes have been made to the text. The text may be downloaded in PDF, Kindle, e-pub, or .mobi format at the following website: http://www.oercommons.org/courses/focusing-on-organizational-change/view

Required Reading

Please read pages 13–17 of the Focusing on Organizational Change text, taking particular note of why organizations must respond to changing environmental pressures, but why organizations are so often rendered incapable of bringing about the very change that is necessary.

Judge, W. (n.d.). Focusing on organizational change. Retrieved from http://www.oercommons.org/courses/focusing-on-organizational-change/view

While the following article is dated, it is included here because it provides interesting insight as to why even the very best of organizations fail. While the reasons for failure are numerous and exceedingly complex, many have one commonality—and that is their failure to change. Note that the causes of failure may be internal to the company and/or they may be external to the company. Also, pay close attention to Figure 2, and the notion of the “Adaptive” company as contrasted with Captive, Legacy, and Arrogant types of companies.

Sheth, J., & Sisodia, R. (2005). Why good companies fail. European Business Forum, 22, 24-30. Retrieved from ProQuest.

If you need help related to the retrieval of articles in the library, be sure to review the following attachment: How to Find an Article in the Online Library from Background Readings

Consider the following diagram that depicts how (collective) organization-wide resistance to change might cause an organization to fail. In this diagram, organizational apathy towards the use of new technology that has been widely adopted by other competitors in the industry has caused decreased overall productivity. In its effort to quickly improve productivity, increased pressure is placed on employees to perform at higher levels, which causes poor morale. In turn, customers recognize the downturn in the quality of the company’s product and/or service, and as a result, the organization experiences revenue shortfalls and falling profits. Expenses need to be cut, and the largest expense (salaries) are cut, resulting in permanent layoffs. This results in further declines in employee morale, and continued reductions in employee productivity.  Because of its dwindling profits, the company can no longer afford to invest in the new technologies that are so desperately needed to restore its productivity (and former profitability). As this downward spiral continues, the inevitable happens: The organization that was once a formidable industry competitor fails.

Resistance to change

Once an innovative, and exceptionally profitable company, Blockbuster failed to adapt to changes in the environment. Watch the following video explaining why Blockbuster failed:

Company Man. (2017, Jun 21). The decline of Blockbuster: What happened? [Video file]. Retrieved from https://www.youtube.com/watch?v=5sMXR7rK40U

Here’s another interesting video concerning the decline of Kmart. As you watch this video, consider key areas in which Kmart failed to change. Was it hubris, oversight, or just plain apathy that caused Kmart’s ills?

Company Man. (2017, May 15). The decline of Kmart: What happened? [Video file]. Retrieved from https://www.youtube.com/watch?v=1__Qg1toSSs

The following article by Donald Sull is also a seminal article from the Harvard Business Review on why good companies fail. Note Sull’s observations that organizations often fail not because they neglected to identify an emerging problem, and not because they failed to act on resolving the problem, but because of “active inertia”—that is, “This solution worked well for us in the past; therefore, it is sure to work again.”

Sull, D. (1999, July/ August). Why good companies go bad. Harvard Business Review. Retrieved from https://hbr.org/1999/07/why-good-companies-go-bad

Optional Reading

For an interesting read on why change efforts often fail, be sure to peruse Chapter 1 (entitled “Riding the Coaster”) of Bill Pasmore’s book. Of particular interest to us in Module 1 is Pasmore’s discussion of several (very interesting) organizational change failures. Take particular note of the section related to the failed DaimlerChrysler and AOL-TimeWarner mergers (both of which Pasmore quips as the “sensational mergers that failed sensationally”):

pasmore-leading continuous change

Pasmore, B. (2015). Leading continuous change. Oakland: Berrett-Koehler Publishers. Retrieved from EBSCO—eBook Collection.

In the following Forbes article, leadership clarity and alignment are discussed in the context of change management. Note the author’s mention of how organizational change is slowed due to internal politics:

Llopis, G. (2014, Jun 30). Change management requires leadership clarity and alignment. Forbes. Retrieved from https://www.forbes.com/sites/glennllopis/2014/06/30/change-management-requires-leadership-clarity-and-alignment/#468dc1813e3c