See attached. Task 1- 9 was done by you guys. Under instruction is the requirement that needs to be done. Also, please include dividend analysis for TASK 8, because it was done before (it is on the instruction). Please include "Introduction", and conclusion as well. basically it is summaries of TASK 1 - 9. please use same info of calculations. include the graph (you can use the same graph from the file). APA Style. Thank you
Instructions Review the scenarios 1 through 9. Assemble a report responding to the tasks you have been given by the Controller. Structure your report so it is clear which task you are addressing. Summarize the results of each task in the body of your report and refer to the detailed supporting calculations contained in your excel work sheet. This is a “lesson’s learned” report as well as your showcase for your thoughts and recommendations on all items completed during the semester. PLEASE ADDRESS THIS FROM TASK 8 Some additional thoughts on this assignment that should have been covered a bit more would be the following: 1. When analyzing a company and their dividend policy we need to take into account the structure of the industry; if it is a mature industry where growth is limited then shareholder return can be maximized by providing income by offering dividends. We just need to establish that this dividend payment is sustainable, will not impact the fixed asset capital needs for operations and growth, and that investors will see a dividend as a positive sign that the company is thinking about shareholder return. 2. Stock repurchases can be used to boost return to shareholders or can be retained in the company for use as employee incentives or future purchases of companies in a stock swap. 3. We need to understand how the financial moves we make to obtain capital for our company are net positive for long term viability of the company. Task 2 Given: Tax Rate36% Cost of debt before tax 7.50% Long-Term Debt130,000,000.00 Current Portion of LT Debt5,350,000.00 Total Debt135,350,000.00 Cost of Equity6.80% Total Owner's equity$170,473,000.00 Calculations: After-tax cost of debt Cost of debt before tax *(1-Tax Rate) After-tax cost of debt 4.800% Proportions of debt and equity in the firm ParticularAmountWeight Total Debt$135,350,000.0044.26% Total Owner's equity$170,473,000.0055.74% Total$305,823,000.00100.00% We compute the WACC in this circumstance by multiplying the weight of each source of Capital with its Cost. Because the WACC is used to assess the present value of future cash flows, it is extremely essential. If the WACC is low (as it is here), it is a favourable sign since it indicates that future cash flows are more valuable. Calculation of WACC ParticularWeightCostWACC Total Debt44.26%4.80%2.12% Total Owner's equity55.74%6.80%3.79% Total100.00%5.91% The capital structure is 44.26% debt and 55.74% equity. This means that the firm is using mainly Equity to fund their operations. This is not ideal as it results in them having a higher tax liability as Lower tax shield is availed on the interest on debt taken, which could have resulted in lower WACC, since debt is cheaper. Task 3 - NPV 1. Calculation of NPV Calculation of Present Value of Cash Outflows YearCash OutflowDiscounting Factor @ 7%Present Value 0$600,000.001$600,000.00 10$200,000.000.51$101,669.86 20$200,000.000.26$51,683.80 30$1,000,000.000.13$131,367.12 Total$884,720.78 Calculation of Present Value of Cash Inflows YearParticularAmount 1-30Annual Savings$50,000.00 1-30Tax Rate (From Task 2)36% 1-30Additional Tax on Annual Saving$18,000.00 1-30Annual Savings net of Tax$32,000.00 1-30Add: Tax Sheild on Depreciation 1-30Tax Shield Depreciation on Initial $600k for 30 years$7,200.00 1-30Tax Shield Depreciation on Subsequent $200k for 20 years$3,600.00 Tax Shield Depreciation on Subsequent $200k for 10 years$7,200.00 Thus, Annual Net Cash Inflows and Present Value of Cash Inflows would be as follows YearCash InflowsDiscounting Factor @ 7%Present Value 1$39,200.000.9346$36,635.51 2$39,200.000.8734$34,238.80 3$39,200.000.8163$31,998.88 4$39,200.000.7629$29,905.49 5$39,200.000.7130$27,949.06 6$39,200.000.6663$26,120.62 7$39,200.000.6227$24,411.79 8$39,200.000.5820$22,814.76 9$39,200.000.5439$21,322.20 10$39,200.000.5083$19,927.29 11$42,800.000.4751$20,333.97 12$42,800.000.4440$19,003.71 13$42,800.000.4150$17,760.48 14$42,800.000.3878$16,598.58 15$42,800.000.3624$15,512.69 16$42,800.000.3387$14,497.84 17$42,800.000.3166$13,549.38 18$42,800.000.2959$12,662.98 19$42,800.000.2765$11,834.56 20$42,800.000.2584$11,060.33 21$50,000.000.2415$12,075.65 22$50,000.000.2257$11,285.66 23$50,000.000.2109$10,547.34 24$50,000.000.1971$9,857.33 25$50,000.000.1842$9,212.46 26$50,000.000.1722$8,609.77 27$50,000.000.1609$8,046.52 28$50,000.000.1504$7,520.11 29$50,000.000.1406$7,028.14 30$50,000.000.1314$6,568.36 Present Value of Cash Inflows$518,890.26 Thus, NPV is -$365,830.51 Since, NPV is Negative, Project should not be accepted Task 3 - MIRR Financing Rate7% Investment Rate 1 to 10 Years6% 10 to 20 years7.66% 21 to 30 years7.74% Using Cash Flows from NPV Calculation of Present Value of Cash Outflows YearCash OutflowDiscounting Factor @ 7%Present Value 0$600,000.001$600,000.00 10$200,000.000.51$101,669.86 20$200,000.000.26$51,683.80 30$1,000,000.000.13$131,367.12 Present Value of Cash Outflows$884,720.78 YearCash InflowsUsing the Investment Rate 1$39,200.006.00%$212,400.81 2$39,200.006.00%$200,378.12 3$39,200.006.00%$189,035.96 4$39,200.006.00%$178,335.81 5$39,200.006.00%$168,241.33 6$39,200.006.00%$158,718.24 7$39,200.006.00%$149,734.19 8$39,200.006.00%$141,258.67 9$39,200.006.00%$133,262.89 10$39,200.006.00%$125,719.71 11$42,800.007.66%$174,082.70 12$42,800.007.66%$161,691.27 13$42,800.007.66%$150,181.87 14$42,800.007.66%$139,491.73 15$42,800.007.66%$129,562.53 16$42,800.007.66%$120,340.11 17$42,800.007.66%$111,774.14 18$42,800.007.66%$103,817.91 19$42,800.007.66%$96,428.02 20$42,800.007.66%$89,564.15 21$50,000.007.74%$97,828.73 22$50,000.007.74%$90,798.34 23$50,000.007.74%$84,273.19 24$50,000.007.74%$78,216.96 25$50,000.007.74%$72,595.96 26$50,000.007.74%$67,378.91 27$50,000.007.74%$62,536.77 28$50,000.007.74%$58,042.62 29$50,000.007.74%$53,871.43 30$50,000.007.74%$50,000.00 Cash Flows Using Investment Rate$3,649,563.06 MIRR(Cash Flows Using Investment Rate/Present Value of Cash Outflows)^(1/n) - 1 4.84% Thus, MIRR is 4.84% Task 5 Data given Shares outstandingStock pricesMarket capitalizationDebt and equity 2021WACCEBITNet earnings Industry average2500000027.7569375000067500000013%1797500015000000 Competitor 12000000036.272400000069545500015%1825500015000000 BEB1500000029.1543725000032150000012%107420007045000 Market capitalization Shares outstandingStock pricesMarket capitalization Industry average2500000027.75693750000 Competitor 12000000036.2724000000 BEB1500000029.15437250000 P/E Ratio calculation Net earningsShares outstandingEPSPriceP/E ratio Industry average15000000250000000.627.7546.25 Competitor 115000000200000000.7536.248.27 BEB7045000150000000.469666666729.1562.07 EVA= NOPAT - (Invested capital* WACC) Industry average-69775000 Competitor 1-86063250 BEB-27838000 MVA (Market capitalization- invested capital) Industry average18750000 Competitor 128545000 BEB115750000 Task 6 1After tax cash flows year 1-12 Under lease option ParticularsYear 0Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12 Lease installments15,00015,00015,00015,00015,00015,00015,00015,00015,00015,00015,00015,00015,000 Taxes savings on lease installments @36%(10,800)(5,400)(5,400)(5,400)(5,400)(5,400)(5,400)(5,400)(5,400)(5,400)(5,400)(5,400) Net after tax cash flows in Year 1-12 under leasing4,2009,6009,6009,6009,6009,6009,6009,6009,6009,6009,6009,600 Net after tax cash flows in Year 1-12 from leasing109,800 Under purchase option ParticularsYear 0Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12 Depreciation expenses7,5297,5297,5297,5297,5297,5297,5297,5297,5297,5297,5297,529 Tax savings on depreciation(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711) Net after tax cash flows in Year 1-12 under purchase(32,526) 2After tax cash flows year 0 Under lease option ParticularsYear 0 Lease installments15,000 Net after tax cash flows in Year 0 under leasing15,000 Under purchase option ParticularsYear 0 Purchase cost90,350 Net after tax cash flows in Year 0 under purchase option90,350 3NPV of cash outflows: Under lease option ParticularsYear 0Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12 Net after tax cash flows in Year 0-12 under leasing15,0004,2009,6009,6009,6009,6009,6009,6009,6009,6009,6009,6009,600 PV Factor @7.5%1.000.930.870.800.750.700.650.600.560.520.490.450.42 Present value15,0003,9078,3077,7287,1886,6876,2205,7865,3835,0074,6584,3334,031 NPV of cash outflows under leasing84,235 Under purchase option ParticularsYear 0Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12 Net after tax cash flows in Year 0-12 under purchase90,350(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711)(2,711) PV Factor @7.5%1.000.930.870.800.750.700.650.600.560.520.490.450.42 Present value90,350(2,521)(2,345)(2,182)(2,030)(1,888)(1,756)(1,634)(1,520)(1,414)(1,315)(1,223)(1,138) NPV of cash outflows under purchase69,384 4Net cash inflows in year 12 if salvage value Rs 5000 ParticularsAmount After tax outflows under purchase option in year 12(2,711) Add: Salvage value net of tax-3200 Net cash inflows in year 12(5,911) 5Recommendation: Purchase option is better as it is having lower PV of cash outflows $69,384 vs $84,235 under lease option. 1 TASK 7, 8 AND 9 Repurchasing shares and deciding to distribute dividends can be challenging. The company's management must carefully evaluate those decisions' impact before carrying them forward. Our analysis focuses on assessing the effects of issuing a dividend by considering the Modigliani-Miller (MM) theorem to determine which option would be the best for the company, between paying dividend or reducing the debt of the company. Additionally, determine if the acquisition of Martin & Sons per BBE will efficiently increase the company's wealth. Task 7 The Modigliani-Miller Theorem (M&M), was developed by two economists named Franco Modigliani and Merton Miller in 1958. According to this theorem, the market value of a company is solely determined by the present value of future earnings and other underlying assets. Additionally, the market value of the company is completely separate from its capital structure. There are three ways for a company to raise money for operational and growth purposes which include borrowing funds through the issuance of bonds or obtaining a loan, issuing stock to investors, or re-investing earned profit back into the company for operational purposes. If the The Modigliani-Miller Theorem (M&M) is true, the available options for a company to raise money does not have an effect on its true market value (Chen, 2021). If M&M assumptions are true, my recommendations for dividends would mirror the Dividend Irrelevance Theory. 1. In this situation we will choose the following idea: All Equity Firm 100 shares o/s Investors required rate of return 10% Expected cash flow 10000 Plan to dissolve the firm 2 years If Miller-Modigliani dividend policy is true, then we will have two plans which are: Stern Corporation Plan A Plan B Year 1 Year 2 Year 1 Year 2 Cash Flow 10000 10000 10000 10000 New Stock 0 0 1000 0 Cash Flow available to the shareholders 10000 10000 11000 10000 To the new shareholders: Dividends 0 0 0 1100 Dividend per share 0 0 0 11 To the old shareholders: