Question 1. A.Assume that Big-City Company (BCC) currently has about two-thirds of their staff members working from home most days. As a result, they need only about one-half of the office space they...

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Question 1. A.Assume that Big-City Company (BCC) currently has about two-thirds of their staff members working from home most days. As a result, they need only about one-half of the office space they lease. Unfortunately, their lease does not allow them to reduce the amount of space they pay for until the end of 2025. That means they have excess space for the time being based on their current work structure. The President has convened a group to consider alternatives. Their best ideas so far are: a.Continue to house their reduced staff in the entire space; b.Break the lease and incur a significant one-time cost; or c.Sub-lease half of the space (allowed under terms of the least) to Up-and-Coming Company (UCC). Consider option c. There are costs that will be incurred in Year 0, which is 2021, to prepare the building for UCC’s use. There are costs that will be incurred in each year of the sub-lease, 2022-2025. There are costs that will be incurred when the lease terminates. Identify and briefly explain at least two items of cash flow BCC will incur for each time period. You do not need to estimate the amounts, just identify and explain each one.  B.Up-and-Coming Company from above is considering modifications to one of its existing products. As part of the sensitivity analysis, they estimated the NPV of the modifications based on three different levels of unit cost: the base level, Base – 10% and Base + 10%. At this time, they consider the three cost levels to be equally likely. The sensitivity chart below is similar to the analysis in section 11-5 of the Chapter 11 Tool Kit on tab ‘2-Sens’. Production DeviationCost/unitNPV from Base$1.95$14,296 -10%$1.76$19,444 0%$1.95$14,296 10%$2.15$9,148 Explain the meaning of the NPV values in the right-hand column. Question 2. The following information is for ZYX, Inc. a national consumer products company: Liabilities and EquityBook valuesTarget Capital Structure Notes Payable $12,00010% Long-term Debt 150,00032% Preferred Stock 5,00020% Common equity 184,00038% Assume that you are an analyst preparing to calculate ZYX’s WACC and that the company’s target capital structure values above are unknown to you; all you know from the outside is the book values provided. Further, assume that ZYX’s cost of debt and cost of equity values are significantly different from each other. Assume for purposes of this question that their cost of debt is higher than their cost of equity. Your estimate of WACC will be inaccurate because you will use weights based on the current values above. How will this inaccuracy affect your estimate of intrinsic value for this company? Question 3. Use the data above for ZYX to calculate the company’s WACC. The additional data you need is below. Show calculations clearly. Liabilities and EquityCost (%) Notes Payable10% Long-term Debt12% Preferred Stock4% Common equity3% Question 4. WUV is considering two investment proposals. Estimated cash flows are below. Each will require an initial cash outlay, followed by several years of positive cash flows. Each project will terminate and all assets will be liquidated in year 6. WUV’s WACC is 8.5%. YearProject 1Project 2 Initial outlay$2,400,000$1,700,000 1$340,000$305,000 2$380,000$305,000 3$450,000$305,000 4$610,000$305,000 5$585,000$305,000 6 including salvage$550,000$340,000 A.Calculate NPV, IRR, MIRR, PI, and payback period for each project. B.These projects are substitutes for each other, so WUV will choose at most one of them. What is your recommendation? Should they go with Project 1, Project 2, or neither? Explain your reasoning.   Question 5. US corporations practice corporate governance in many different ways. At one extreme, some companies take an approach that allows pretty much any legal action as long as it promises to increase profitability. Call this Position A. At another extreme, some companies attempt to base major decisions on how they will affect the long-term interests of all stakeholders, including the natural environment; they are willing to forego some profitable actions if those actions would cause a certain level of harm. Call this Position B. Over the last 20-30 years, corporations have been moving away from Position A and toward Position B. In the course of your research on the company you used for your analysis project, have you learned about any actions that seem to fit this pattern? Does the company publicly report on its activities through something like an Environmental, Social and Governance (ESG) statement or a triple-bottom line statement? Have they made a change to their board structure or created new ways to engage with communities near their manufacturing facilities? Answer one of the following questions: If you are aware of actions like the examples above: Explain what we can learn from the company through these actions. You might include mention of the limitations on what we can learn from these actions. If you are NOT aware of actions like the examples above: What does the absence of these actions tell us about the company? You may assume for purposes of this question that there are not, in fact, any such actions and that you haven’t simply missed them. Is this absence an actual negative signal or simply a neutral signal that conveys little or no information? Explain your reasoning. Q2 and Q3 Data for question 2:Additional data for question 3: Liabilities and EquityBook valuesTarget Capital StructureCost (%) Notes Payable$12,00010%10% Long-term Debt150,00032%12% Preferred Stock5,00020%4% Common equity184,00038%3% Q4 YearProject 1Project 2 Initial outlay$2,400,000$1,700,000 1$340,000$305,000 2$380,000$305,000 3$450,000$305,000 4$610,000$305,000 5$585,000$305,000 6 including salvage$550,000$340,000
Answered 5 days AfterJul 17, 2021

Answer To: Question 1. A.Assume that Big-City Company (BCC) currently has about two-thirds of their staff...

Nitish Lath answered on Jul 23 2021
133 Votes
Solution 1
        Particulars    Cost per unit    NPV    Meaning
        Base    1.95    14296    It shows that the present val
ue of net cash flows will be $14296 and the project can be accepted.
        Base+ 10%    2.15    19444    It shows that the present value of net cash flows will be $19444 if there is increase in price by 10% and the project can be accepted.
        Base- 10%    1.76    9148    It shows that the present value of net cash flows will be $9148 if there is decrease in price by 10% and the project can be accepted.
        Decision: Since in all cases the project is having positive NPV so project should be accepted.
Solution 3
    Data for question 2:
    Liabilities and...
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