Taussig Technologies

 

1.      Taussig Technologies is considering two potential projects, X and Y. In assessing the projects’ risks, the company estimated the beta of each project versus both the company’s other assets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data:

  Project X Project Y
Expected NPV $350,000 $350,000
Standard deviation (sNPV) $100,000 $150,000
Project beta (vs. market) 1.4 0.8

Correlation of the project cash flows with cash flows from currently existing projects. Cash flows are notcorrelated with the cash flows from existing projects. Cash flows are highly correlated with the cash flows from existing projects.

Which of the following statements is CORRECT?

2.      Ehrmann Data Systems is considering a project that has the following cash flow and WACC data. What is the project’s MIRR? Note that a project’s MIRR can be less than the WACC (and even negative), in which case it will be rejected.

WACC: 10.00%      
Year 0 1 2 3
Cash flows -$1,000 $450 $450 $450

 

3.       Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

 

4.       Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one cash outflow at t = 0 followed by a series of positive cash flows.

 

5.       You are on the staff of Camden Inc. The CFO believes project acceptance should be based on the NPV, but Steve Camden, the president, insists that no project should be accepted unless its IRR exceeds the project’s risk-adjusted WACC. Now you must make a recommendation on a project that has a cost of $15,000 and two cash flows: $110,000 at the end of Year 1 and -$100,000 at the end of Year 2. The president and the CFO both agree that the appropriate WACC for this project is 10%. At 10%, the NPV is $2,355.37, but you find two IRRs, one at 6.33% and one at 527%, and a MIRR of 11.32%. Which of the following statements best describes your optimal recommendation, i.e., the analysis and recommendation that is best for the company and least likely to get you in trouble with either the CFO or the president?

6.       A company is considering a proposed new plant that would increase productive capacity. Which of the following statements is CORRECT?

 

7.       Westchester Corp. is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11%, while Project B’s IRR is 14%. When the WACC is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT?

 

8.       Which of the following statements is CORRECT?

 
9.      Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project’s 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project’s 3-year life. What is the project’s NPV? (Hint: Cash flows are constant in Years 1-3.)

WACC 10.0%
Opportunity cost $100,000
Net equipment cost (depreciable basis) $  65,000
Straight-line deprec. rate for equipment 33.333%
Sales revenues, each year $123,000
Operating costs (excl. deprec.), each year $  25,000
Tax rate 35%

 

10.  Warnock Inc. is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected.

WACC: 10.00%      
Year 0 1 2 3
Cash flows -$950 $500 $400 $300

 

11.  Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

 

12.  Mansi Inc. is considering a project that has the following cash flow data. What is the project’s payback?

Year 0 1 2 3
Cash flows -$750 $300 $325 $350

 

13.   Which of the following statements is CORRECT?

14.  Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of the following statements is most likely to be true?

 

15.  Resnick Inc. is considering a project that has the following cash flow data. What is the project’s payback?

Year 0 1 2 3
Cash flows -$350 $200 $200 $200

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NPV for varying costs of capital

P10–1 Payback period Jordan Enterprises is considering a capital expenditure that requires an initial investment of $42,000 and returns after-tax cash inflows of $7,000 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.

(A) Determine the payback period for this project.

(B) Should the company accept the project? Why or why not?

P10–6

P10–1 Payback period Jordan Enterprises is considering a capital expenditure that requires an initial investment of $42,000 and returns after-tax cash inflows of $7,000 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.

(A) Determine the payback period for this project.

(B) Should the company accept the project? Why or why not?

P10–6 NPV for varying costs of capital Dane Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $24,000 and will generate after-tax cash inflows of $5,000 per year for 8 years. For each of the costs of capital listed, (1) calculate the net present value (NPV), (2) indicate whether to accept or reject the machine, and (3) explain your decision.

a. The cost of capital is 10%.

b. The cost of capital is 12%.

c. The cost of capital is 14%.

P10–16 IRR: Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm’s warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firm’s cost of capital is 15%.

Project X Project Y
Initial investment (CF 0) $500,000 $325,000
Year (t) Cash inflows (CFt )
1 $100,000 $140,000
2 120,000 120,000
3 150,000 95,000
4 190,000 70,000
5 250,000 50,000

a. Calculate the IRR to the nearest whole percent for each of the projects.

b. Assess the acceptability of each project on the basis of the IRRs found in part a.

c. Which project, on this basis, is preferred?

P10–22 Payback, NPV, and IRR Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.

Year (t) Cash inflows (CFt )
1 $20,000
2 25,000
3 30,000
4 35,000
5 40,000

a. Calculate the payback period for the proposed investment.

b. Calculate the net present value (NPV) for the proposed investment.

c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment.

d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?

P11–1 Classification of expenditures Given the following list of outlays, indicate whether each is normally considered a capital expenditure or an operating expenditure. Explain your answers.

a. An initial lease payment of $5,000 for electronic point-of-sale cash register systems

b. An outlay of $20,000 to purchase patent rights from an inventor

c. An outlay of $80,000 for a major research and development program

d. An $80,000 investment in a portfolio of marketable securities

e. A $300 outlay for an office machine

f. An outlay of $2,000 for a new machine tool

g. An outlay of $240,000 for a new building

h. An outlay of $1,000 for a marketing research report

P11–7 Book value Find the book value for each of the assets shown in the accompanying table, assuming that MACRS depreciation is being used. See Table 4.2 on page 120 for the applicable depreciation percentages.

Asset Installed cost Recovery period (years) Elapsed time since purchase (years)
A $ 950,000 5 3
B 40,000 3 1
C 96,000 5 4
D 350,000 5 1
E 1,500,000 7 5

Table 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes

Percentage by recovery year a
Recovery year 3 years 5 years 7 years 10 years
1 33% 20% 14% 10%
2 45 32 25 18
3 15 19 18 14
4 7 12 12 12
5 12 9 9
6 5 9 8
7 9 7
8 4 6
9 6
10 6
11          4
Totals 100% 100% 100% 100%
These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance depreciation using the half-year convention.
Year Cost (1) Percentages (from Table 4.2 ) (2) Depreciation [(1) × (2)] (3)
1 $40,000 20% $ 8,000
2 40,000 32 12,800
3 40,000 19 7,600
4 40,000 12 4,800
5 40,000 12 4,800
6 40,000   5  2,000
Totals 100% $40,000

P11–11 Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2 , page 120 .) A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.

(C) Calculate the book value of the existing computer system.

(D) Calculate the after-tax proceeds of its sale for $200,000.

(E) Calculate the initial investment associated with the replacement project.

Dane Cosmetics is evaluating a new fragrance-mixing machine. The machine requires an initial investment of $24,000 and will generate after-tax cash inflows of $5,000 per year for 8 years. For each of the costs of capital listed, (1) calculate the net present value (NPV), (2) indicate whether to accept or reject the machine, and (3) explain your decision.

a. The cost of capital is 10%.

b. The cost of capital is 12%.

c. The cost of capital is 14%.

P10–16 IRR: Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm’s warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firm’s cost of capital is 15%.

Project X Project Y
Initial investment (CF 0) $500,000 $325,000
Year (t) Cash inflows (CFt )
1 $100,000 $140,000
2 120,000 120,000
3 150,000 95,000
4 190,000 70,000
5 250,000 50,000

a. Calculate the IRR to the nearest whole percent for each of the projects.

b. Assess the acceptability of each project on the basis of the IRRs found in part a.

c. Which project, on this basis, is preferred?

P10–22 Payback, NPV, and IRR Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.

Year (t) Cash inflows (CFt )
1 $20,000
2 25,000
3 30,000
4 35,000
5 40,000

a. Calculate the payback period for the proposed investment.

b. Calculate the net present value (NPV) for the proposed investment.

c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment.

d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?

P11–1 Classification of expenditures Given the following list of outlays, indicate whether each is normally considered a capital expenditure or an operating expenditure. Explain your answers.

a. An initial lease payment of $5,000 for electronic point-of-sale cash register systems

b. An outlay of $20,000 to purchase patent rights from an inventor

c. An outlay of $80,000 for a major research and development program

d. An $80,000 investment in a portfolio of marketable securities

e. A $300 outlay for an office machine

f. An outlay of $2,000 for a new machine tool

g. An outlay of $240,000 for a new building

h. An outlay of $1,000 for a marketing research report

P11–7 Book value Find the book value for each of the assets shown in the accompanying table, assuming that MACRS depreciation is being used. See Table 4.2 on page 120 for the applicable depreciation percentages.

Asset Installed cost Recovery period (years) Elapsed time since purchase (years)
A $ 950,000 5 3
B 40,000 3 1
C 96,000 5 4
D 350,000 5 1
E 1,500,000 7 5

Table 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes

Percentage by recovery year a
Recovery year 3 years 5 years 7 years 10 years
1 33% 20% 14% 10%
2 45 32 25 18
3 15 19 18 14
4 7 12 12 12
5 12 9 9
6 5 9 8
7 9 7
8 4 6
9 6
10 6
11          4
Totals 100% 100% 100% 100%
These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance depreciation using the half-year convention.
Year Cost (1) Percentages (from Table 4.2 ) (2) Depreciation [(1) × (2)] (3)
1 $40,000 20% $ 8,000
2 40,000 32 12,800
3 40,000 19 7,600
4 40,000 12 4,800
5 40,000 12 4,800
6 40,000   5  2,000
Totals 100% $40,000

P11–11 Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2 , page 120 .) A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.

(C) Calculate the book value of the existing computer system.

(D) Calculate the after-tax proceeds of its sale for $200,000.

(E) Calculate the initial investment associated with the replacement project.

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report the current GDP

Complete the following homework scenario:

  • Using only websites ending in .gov, report the current GDP, the current Federal deficit, the current Federal debt, and the bottom line of the current (last) budget approved by Congress (surplus or shortage). Note that the fiscal year for the federal government is October 1 – September 31.
  • What inference can you draw from the numbers collected?

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Evaluating the Business Change Process

Evaluating the Business Change Process

In this Assignment you will provide a critical evaluation of a business process in the scenario provided. The final response for this Assignment will be a 15–17 slide PowerPoint presentation with audio. The audio portion transcript is found in the notes section below each slide. The presentation includes a cover slide, abstract, body addressing the checklist items, and APA citations and references.

Background: Mohammed Yunus is the founder of the concept of microfinancing. His initial impetus to provide financing to individual small family owned businesses in India and elsewhere inspired a movement that has spread across the world with some controversy as to the real benefits of such financing. See the founder’s website for some background on microfinancing.

  • In addition, you practiced with some of Geert Hofstede’s cultural dimensions in the Learning Activity that you will now use to address any cultural considerations in your evaluation of the business process described.

Scenario: You were recently hired by a nonprofit organization that is headquartered in Montreal, Canada. This organization, Beacon of Hope (BOH), had a mission of providing financing to businesses who wished to start a business in third world countries. Two years ago, they changed their mission to providing microfinancing to individuals in third world countries who want to start up a small business in their own country. The first two countries they focused on were Angola and Ghana. After two years in operation, it has become apparent that a change is necessary. Choose either Angola or Ghana to evaluate the organization’s current process addressing the following concerns:

Here are some of the reported problems:

-Only 225 applications were received from prospects concerning each of the two countries. At the 2-year mark, the expectation       was 1200 applications for each.

-The application processing time is taking 4–6 months. The original goal was 2 months.

-Only 100 applications have been approved for each country, and the average loan is $10,000.

-The most recent report shows that only 15% of the businesses funded are still in operation.

-Accessing the microfinancing funds has proven problematic using in-country banks.

-Accounting for the expenditure of funds by BOH has been difficult to track.

-Loan delinquency is a major concern due to business failure.

Checklist: Evaluate the business change process by researching and addressing the following:

  1. Provide an overall assessment of the existing program and what needs to be changed to be viable.
  2. Analyze the likely reasons that the application processing time for microfinancing is taking 4-6 months.
  3. Identify the stakeholders who should be involved in this change management process and explain BOH’s responsibility towards these stakeholders. HINT: A stakeholder is any person, group, or organization that has a positive or negative impact on the work or anyone who might be affected by the outcome.
  4. Explain how you will evaluate success once your proposed plan is in place.

Access instructions concerning how to add audio to PowerPoint presentations and adding notes to a presentation. The professional presentation should include a cover slide, abstract slide, body of the presentation addressing the checklist items, with APA citations and references (i.e., separate references slide).

Access the rubric

Submit your 15–17-slide professional PowerPoint presentation with audio including audio transcript in form of notes added below each slide. The presentation includes a cover slide, abstract, body addressing the checklist items, and APA citations and references

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IRAC format

please do the following…….this must be done by tomorrow 8pm California time……

no late work!!

This video has information that will help:  http://www.youtube.com/watch?v=levdy6-Mfa4

Do the following: 

For this assignment analyze each of the scenarios below using the IRAC format and  submit your assignment as a Word document by the due date of Sunday, April 15.  To be eligible for full points you must label the different parts of your answers as Issue, Rule, Application, and Conclusion.  And you must do this for each of the three scenarios below.

I suggest that you frame the Issue as a question that can be answered ‘yes’ or ‘no’.    For example, suppose the scenario described an incident that seemed like it might involve embezzlement.  The Issue is:    Did John’s actions constitute embezzlement under the law?  The Rule step would require you to list the various laws that have to do with embezzlement.  The third step of IRAC is Application and that is where you have to apply the various rules and laws to your specific scenario.  This analysis could include the mention of other cases considered to be good precedent for your scenario.  Finally, your Conclusion simply answers the question that you set up in step one, and it can be stated as ‘yes’ or ‘no’.  If your analysis leads you to determine that John’s actions did constitute embezzlement based on your analysis of the Rules of law and how they relate to your situation, then your Conclusion is ‘Yes.’

Label your answers A, B, and C.  Remember, you must cite specific laws or legal precedent to support your decision in each scenario.  You may reference any chapter from our text to support your reasoning. (providing page # in the text would be helpful).  You may also do your own legal research on the internet.  The more legal details that you provide, the higher your score will be.  Good luck.

A.   Freedom of Speech

Mark Wooden sent an email to an alderwoman for the City of St. Louis.  Attached was a nineteen-minute audio file that compared her to the biblical character Jezebel.  The audio said she was a “bitch in the Sixth Ward,” spending too much time with the rich and powerful and too little time with the poor.  In a menacing, maniacal tone, Wooden said that he was “dusting off a sawed-off shot gun,” called himself a “domestic terrorist,” and referred to the assassination of President John Kennedy, the murder of federal judge John Roll, and the shooting of Representative Gabrielle Giffords.  Feeling threatened, the alderwoman called the police. Wooden was convicted of harassment under a state criminal statute.  Was this conviction unconstitutional under the First Amendment?

B. Arbitrary and Capricious Test

Michael Manin, an airline pilot, was twice convicted of disorderly conduct, a minor misdemeanor.  To renew his flight certification with the National Transportation Safety Board (NTSB), Manin filed an application that asked him about his criminal history.  He did not disclose his two convictions.  When these came to light more than ten years later, Manin argued that he had not known that he was required to report convictions for minor misdemeanors.  The NTSB’s policy was to consider an applicant’s understanding of what information a question sought before determining whether an answer was false.  But without explanation, the agency departed from this policy, refused to consider Manin’s argument, and revoked his certification.  Was this action arbitrary or capricious?

C. Fourth Amendment

Three police officers, including Maria Trevizo, were on patrol in Tuscon, Arizona, near a neighborhood associated with the Crips gang, when they pulled over a car with suspended registration.  Each officer talked to one of the three occupants.  Trevizo spoke with Lemon Johnson, who was wearing clothing consistent with Crips membership.  Visible in his jacket pocket was a police scanner, and he said that he had served time in prison for burglary.  Trevizo asked him to get out of the car and patted him down “for officer safety.” She found a gun.  Johnson was charged in an Arizona state court with illegal possession of a weapon.  What standard should apply to an officer’s patdown of a passenger during a traffic stop?  Should a search warrant be required?  Could a search proceed solely on the basis of probable cause?  Would a reasonable suspicion short of probable cause be sufficient?

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Income Statement worksheet

Instructions

Instructions Read and follow these instructions to complete the workbook. 1. To complete the Income Statement worksheet, Balance Sheet worksheet, and Cash Flow worksheet: a. Use the data you already collected in Project 2 to fill in the Choice Hotels table. b. Collect Marriott International’s 10-K data from the Securities Exchange Commission website. c. Complete the percent change table on the right side of the workbook. (In the Balance sheet workbook, provide data only for the requested totals.) d. Answer the questions in the space given. 2. Given the supplied data in the Cost and Investing worksheet, answer the questions in the space provided. 3. To complete the Budgeting worksheet and Profitability worksheet:      a. Solve the ratios provided. b. Answer the questions in the space given.

Income Statement

CHH 2017 10-K Report CHH 2016 10-K Report MAR 2017 10-K Report MAR 2016 10-K Report
Choice Hotels 10-K Marriott International 10-K
2017 2016 (2017/2016)-1 2017 2016 (2017/2016)-1
Account Name 2017 10-K 2016 10-K2 Percent change from 2016 to 2017 Account Name 2017 10-K 2016 10-K2 Percent change from 2016 to 2017
REVENUES REVENUES
Royalty fees $ 345,302 $ 320,547 Base management fees $ 1,102 $ 806
Initial franchise and relicensing fees $ 26,262 $ 23,953 Franchise fees $ 1,618 $ 1,169
Procurement services $ 34,661 $ 31,226 Incentive management fees $ 607 $ 425
Marketing and reservation system $ 567,083 $ 525,716 Owned, leased, and other revenue $ 1,802 $ 1,126
Other $ 34,048 $ 23,199 Cost reimbursements $ 17,765 $ 13,546
Total revenues $ 1,007,356 $ 924,641 Total revenue $ 22,894 $ 17,072
OPERATING EXPENSES OPERATING COSTS AND EXPENSES
Selling, general and administrative $ 163,377 $ 148,728 Owned, leased, and other-direct $ 1,427 $ 900
Depreciation and amortization $ 12,431 $ 11,705 Reimbursed costs $ 17,765 $ 13,546
Marketing and reservation system $ 567,083 $ 525,716 Depreciation, amortization, and other $ 290 $ 168
Total operating expenses $ 742,891 $ 686,149 General, administrative, and other $ 894 $ 704
Gain (loss) on sale of assets, net $ (32) $ 403 Merger-related costs and charges $ 159 $ 386
Operating income $ 264,433 $ 238,895 Costs and Expenses, Total $ 20,535 $ 15,704
Operating income $ 2,359 $ 1,368
OTHER INCOME AND EXPENSES, NET Gains and other income, net $ 688 $ 5
Interest expense $ 45,039 $ 44,446 Interest expense $ (288) $ (234)
Interest income $ (5,920) $ (3,535) Interest income $ 38 $ 35
Other gains $ (3,229) $ (1,504) Equity in earnings $ 39 $ 10
Equity in net (income) loss of affiliates $ 4,546 $ (492)
Total other income and expenses, net $ 40,436 $ 38,915
Income before income taxes $ 223,997 $ 199,980 Income before income taxes $ 2,836 $ 1,184
Income taxes $ 109,104 $ 60,609 Provision for income taxes $ (1,464) $ (404)
Net income $ 114,893 $ 139,371 Net income $ 1,372 $ 780

Questions: 1. Based on your horizontal analysis of Choice Hotels’ and Marriott International’s total revenue, total expenses, and net income, which company would be a more attractive target for an acquisition by the equity firm and why? 2. Given the changes in total revenue, operating income, and net income from 2016 to 2017, did Choice Hotels or Marriott International experience more change? Which area (total revenue, operating income, or net income) changed most?

Answer Questions 1 to 3 here.

https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828018001756/0001628280-18-001756-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828017001506/0001628280-17-001506-index.htm

Balance Sheet

CHH 2017 10-K Report CHH 2016 10-K Report MAR 2017 10-K Report MAR 2016 10-K Report
Account name 2017 2016 (2017/2016)-1 Account name 2017 2016 (2017/2016)-1
ASSETS CHH 2017 10-K Report CHH 2016 10-K Report Percent change from 2016 to 2017 ASSETS MAR 2017 10-K Report MAR 2016 10-K Report Percent change from 2016 to 2017
Current assets Current assets
Cash and cash equivalents $ 235,336.00 $ 202,463.00 Cash and equivalents $ 383.00 $ 858.00
Receivables $ 125,452.00 $ 107,336.00 Accounts and notes receivable, net $ 1,991.00 $ 1,695.00
Income taxes receivable $ – 0 $ 316.00 Prepaid expenses and other $ 224.00 $ 230.00
Notes receivable, net of allowance $ 13,904.00 $ 7,873.00 Assets held for sale $ 149.00 $ 588.00
Other current assets $ 28,241.00 $ 26,885.00 Assets, current, total $ 2,747.00 $ 3,371.00
Total current assets $ 402,933.00 $ 344,873.00 Property and equipment, net $ 1,793.00 $ 2,335.00
Property and equipment, at cost, net $ 83,374.00 $ 84,061.00 Intangible assets
Goodwill $ 80,757.00 $ 78,905.00 Intangible assets $ 8,805.00 $ 9,270.00
Intangible assets, net $ 14,672.00 $ 15,738.00 Goodwill $ 9,207.00 $ 7,598.00
Notes receivable, net of allowances $ 147,993.00 $ 110,608.00 Goodwill and intangible assets, net, total $ 18,012.00 $ 16,868.00
Investments, employee benefit plans, at fair value $ 20,838.00 $ 16,975.00 Equity and cost method investments $ 740.00 $ 728.00
Investments in unconsolidated entities $ 134,226.00 $ 94,839.00 Notes receivable, net $ 142.00 $ 245.00
Deferred income taxes $ 13,335.00 $ 52,812.00 Deferred tax assets $ 93.00 $ 116.00
Other assets $ 29,479.00 $ 53,657.00 Other noncurrent assets $ 421.00 $ 477.00
Total assets $ 927,607.00 $ 852,468.00 Total assets $ 23,948.00 $ 24,140.00
LIABILITIES AND SHAREHOLDERS EQUITY CHH 2017 10-K Report CHH 2016 10-K Report Percent change from 2016 to 2017 LIABILITIES AND SHAREHOLDERS EQUITY MAR 2017 10-K Report MAR 2016 10-K Report Percent change from 2016 to 2017
Current liabilities Current liabilities
Accounts payable $ 63,540.00 $ 48,071.00 Current portion of long-term debt $ 398.00 $ 309.00
Accrued expenses and other current liabilities $ 85,838.00 $ 80,388.00 Accounts payable $ 780.00 $ 687.00
Deferred revenue $ 141,111.00 $ 133,218.00 Accrued payroll and benefits $ 1,227.00 $ 1,174.00
Current portion of long-term debt $ 1,232.00 $ 1,195.00 Liability for guest loyalty programs $ 2,064.00 $ 1,866.00
Income taxes payable $ 2,776.00 $ 796.00 Accrued expenses and other $ 1,541.00 $ 1,111.00
Total current liabilities $ 294,497.00 $ 263,668.00 Liabilities, current, total $ 6,010.00 $ 5,147.00
Long-term debt $ 725,292.00 $ 839,409.00 Long-term debt $ 7,840.00 $ 8,197.00
Deferred compensation and retirement plan obligations $ 25,566.00 $ 21,595.00 Liability for guest loyalty programs $ 2,876.00 $ 2,675.00
Income taxes payable $ 29,041.00 $ – 0 Deferred tax liabilities $ 604.00 $ 1,020.00
Deferred income taxes $ 39.00 $ 292.00 Other noncurrent liabilities $ 2,887.00 $ 1,744.00
Other liabilities $ 65,274.00 $ 38,853.00
Total liabilities $ 1,139,709.00 $ 1,163,817.00 Shareholders’ equity
Class A Common Stock $ 5.00 $ 5.00
Commitments and Contingencies Additional paid-in-capital $ 5,770.00 $ 5,808.00
Common stock $ 951.00 $ 951.00 Retained earnings $ 7,391.00 $ 6,501.00
Additional paid-in-capital $ 182,448.00 $ 159,045.00 Treasury stock, at cost $ (9,418.00) $ (6,460.00)
Accumulated other comprehensive loss $ (4,699.00) $ (8,522.00) Accumulated other comprehensive loss $ (17.00) $ (497.00)
Treasury stock $ (1,064,573.00) $ (1,070,383.00) Stockholders’ deficit $ 3,731.00 $ 5,357.00
Retained earnings $ 673,771.00 $ 607,560.00 Liabilities and deficit, total $ 23,948.00 $ 24,140.00
Total shareholders equity $ (212,102.00) $ (311,349.00)
Total liabilities and shareholders equity $ 927,607.00 $ 852,468.00

Questions: 1. Based on your horizontal analysis of Choice Hotels’ and Marriott International’s total assets, total liabilities, and total equity, which company is most attractive for an acquisition by the equity firm and why? 2. What advice would you give to the client, Choice Hotels, to reduce its total liabilities?

Answer Questions 1 to 3 here.

https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828018001756/0001628280-18-001756-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828017001506/0001628280-17-001506-index.htm

Cash Flow

CHH 2017 10-K Report CHH 2016 10-K Report MAR 2017 10-K Report MAR 2016 10-K Report
10-K 10-K
Choice Hotels 2017 2016 (2017/2016)-1 Marriott International 2017 2016 (2017/2016)-1
CASH FLOWS FROM OPERATING ACTIVITIES 2017 10-K 2016 10-K Percent change from 2016 to 2017 CASH FLOWS FROM OPERATING ACTIVITIES 2017 10-K 2016 10-K Percent change from 2016 to 2017
Net income $ 114,893 $ 139,371 Net income $ 1,372 $ 780
Adjustments to reconcile net income to net cash provided by operating activities Adjustments to reconcile to cash provided by operating activities:
Depreciation and amortization $ 12,431 $ 11,705 Depreciation, amortization, and other $ 290 $ 168
Loss (gain) on disposal of assets $ 52 $ (346) Share-based compensation $ 181 $ 212
Provision for bad debts, net $ 3,440 $ 2,151 Income taxes $ 828 $ 76
Non-cash stock compensation and other charges $ 23,340 $ 15,458 Liability for guest loyalty program $ 378 $ 343
Non-cash interest and other (income) loss $ (772) $ 1,059 Merger-related charges $ (124) $ 113
Deferred income taxes $ 39,320 $ (10,542) Working capital changes $ 81 $ (77)
Equity in net losses from unconsolidated joint ventures, less distributions received $ 6,579 $ 1,025 (Gain) loss on asset dispositions $ (687) $ 1
Changes in assets and liabilities, net of acquisition Other $ 117 $ 66
Receivables $ (23,126) $ (21,919) Net cash provided by operating activities $ 2,436 $ 1,682
Advances to/from marketing and reservation system activities, net $ 51,722 $ (21,449)
Forgivable notes receivable, net $ (30,638) $ (17,410) INVESTING ACTIVITIES
Accounts payable $ 12,455 $ (13,689) Acquisition of a business, net of cash acquired $ – 0 $ (2,412)
Accrued expenses and other current liabilities $ 7,176 $ 5,225 Capital expenditures $ (240) $ (199)
Income taxes payable/receivable $ 31,383 $ 5,775 Dispositions $ 1,418 $ 218
Deferred revenue $ 7,797 $ 61,646 Loan advances $ (93) $ (32)
Other assets $ 1,521 $ (8,703) Loan collections $ 187 $ 67
Other liabilities $ (199) $ 2,678 Contract acquisition costs $ (189) $ (80)
Net cash provided by operating activities $ 257,374 $ 152,035 Redemption of debt security $ – 0 $ – 0
Other $ (63) $ 29
CASH FLOWS FROM INVESTING ACTIVITIES Net cash provided by (used in) investing activities $ 1,020 $ (2,409)
Investment in property and equipment $ (23,437) $ (25,191)
Investment in intangible assets $ (2,517) $ (2,580) FINANCING ACTIVITIES
Proceeds from sales of assets $ 1,000 $ 11,462 Commercial paper/Credit Facility, net $ 25 $ 1,365
Acquisitions of real estate $ – 0 $ (28,583) Issuance of long-term debt $ – 0 $ 1,482
Business acquisition, net of cash acquired $ – 0 $ (1,341) Repayment of long-term debt $ (310) $ (326)
Contributions to equity method investments $ (50,554) $ (34,661) Issuance of Class A Common Stock $ 6 $ 34
Distributions from equity method investments $ 4,569 $ 3,700 Dividends paid $ (482) $ (374)
Purchases of investments, employee benefit plans $ (2,447) $ (1,661) Purchase of treasury stock $ (3,013) $ (568)
Proceeds from sales of investments, employee benefit plans $ 2,245 $ 1,911 Share-based compensation withholding taxes $ (157) $ (100)
Issuance of mezzanine and other notes receivable $ (19,738) $ (32,604) Other $ – 0 $ (24)
Collections of mezzanine and other notes receivable $ 655 $ 11,070 Net cash (used in) provided by financing activities $ (3,931) $ 1,489
Other items, net $ 109 $ 11 (DECREASE) INCREASE IN CASH AND EQUIVALENTS $ (475) $ 762
Net cash used by investing activities $ (90,115) $ (98,467) CASH AND EQUIVALENTS, beginning of period $ 858 $ 96
CASH AND EQUIVALENTS, end of period $ 383 $ 858
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt $ – 0 $ – 0
Net (repayments) borrowings pursuant to revolving credit facilities $ (115,003) $ 25,795
Principal payments on long-term debt $ (660) $ (988)
Proceeds from other debt agreements $ – 0 $ 550
Debt issuance costs $ – 0 $ (284)
Purchases of treasury stock $ (9,807) $ (35,926)
Dividends paid $ (48,651) $ (46,182)
Proceeds from transfer of interest in notes receivable $ 24,237 $ – 0
Proceeds from exercise of stock options $ 14,107 $ 12,951
Net cash used by financing activities $ (135,777) $ (44,084)
Net change in cash and cash equivalents $ 31,482 $ 9,484
Effect of foreign exchange rate changes on cash and cash equivalents $ 1,391 $ (462)
Cash and cash equivalents at beginning of period $ 202,463 $ 193,441
Cash and cash equivalents at end of period $ 235,336 $ 202,463

Questions: 1. Based on your horizontal analysis of Choice Hotels’ and Marriott International’s operating, investing, and financing activities, which company is most attractive for an acquisition by the equity firm and why? 2. What advice would you give to the client, Choice Hotels, to improve their investing and financing activities?

Answer Questions 1 to 3 here.

https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828018001756/0001628280-18-001756-index.htm https://www.sec.gov/Archives/edgar/data/1048286/000162828017001506/0001628280-17-001506-index.htm

Cost and Investing

Choice Hotels Sales, Production, and Cost Information Overhead Costs
Room Type Standard Guest Room Junior Suite Presidential Suite Type Cost
Volume 150 110 25 Depreciation $3,200,000
Price $140,000 $240,000 $1,050,000 Maintenance $1,800,000
Unit costs Purchasing $320,000
Direct materials $30,000 $92,000 $310,000 Inspection $850,000
Direct labor $54,000 $85,000 $640,000 Indirect materials $490,000
Manufacturing $30,000 $30,000 $30,000 Supervision $1,700,000
overhead Supplies $190,000
Total unit cost $114,000 $207,000 $980,000 Total manufacturing overhead cost $8,550,000
Unit gross profit $26,000 $33,000 $70,000 Note: Manufacturing overhead costs are fixed. They do not vary with the volume of manufacturing activity.
Direct labor hours 1,200 1,300 5,940
Rate per hour $45.00 $65.38 $107.74
Choice Hotels’ controller developed the following data for use in activity-based costing: Complete the calculations to help you answer the questions below
Manufacturing overhead Amount Cost driver Standard Guest Room Junior Suite Presidential Suite Total Square Feet Cost per square foot Standard Guest room Junior Suite Presidential Suite Check
Depreciation $3,200,000 Square feet 50,000 30,000 30,000 110,000 square feet $ 29.09 $ 1,454,545 $ 872,727 $ 872,727 $ 3,200,000
Maintenance $1,800,000 Direct labor hours 180,000 143,000 148,500
Purchasing $320,000 # of purchase orders 2,500 1,500 9,000
Inspection $850,000 # of inspections 1,000 850 3,500
Indirect $490,000 Units manufactured 150 110 25
materials
Supervision $1,700,000 # of inspections 1,000 850 3500
Supplies $190,000 Units manufactured 150 110 25
Total $8,550,000 234,800 176,420 194,550

Questions: 1. What would be the cost per unit of producing Guest Room Set A using factory space as the allocation basis? What would be the cost per unit using labor as the allocation basis? 2. What would be the cost per unit of producing Guest Room Set A using activity-based costing? 3. Should Choice Hotels build Guest Room Set A or Guest Room Set B? Why? 4. Should Choice Hotels build or purchase the guest room furniture? Why?

Choice Hotels produces three models of guest rooms: the standard guest room, Junior Suite, and Presidential Suite. The Standard Guest Room comes with basic furniture, bathroom plan, and amenities. It sells for $140,000 to franchise hotels. The Junior Suite model is larger and includes an enhanced furniture selection, upgraded bathroom fixtures, more comfortable bedding. The guest room is considered an upgrade from the standard guestroom model. The Junior Suite sells for $240,000 to franchise hotels. The Presidential Suite model is a custom-made guest room with floors and walls constructed from specialty wood. The drapes are made from the traditional flax-based canvass. It has the look and feel of a room in the White House, with modern comforts and security. The Presidential Suite sells for $1,050,000 to franchise hotels. Workers who build the Presidential Suite are specialized craftsmen. They earn twice the hourly rate of those working on the Standard Guest Room and Junior Suite models. The labor rate is fully burdened to include benefits. Most of Choice Hotels’ guest room sales come from the Standard Guest Room and the Junior Suite, but sales of the Presidential Suite model have been growing. The company’s sales, production, and cost information for last year is provided to the right:

Questions: 3. Use activity-based costing to allocate the costs of overhead per unit and in total to each guest room type. Show all supporting calculations in the space provided. 4. Calculate the cost of one Presidential Suite using activity-based costing.

Questions: 1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs to the Standard Guest Room and the Junior Suite, because over 90 percent of the models produced were one of these two models. How much overhead was allocated to each of the three models last year? Discuss why this might not be an accurate way to assign overhead costs to products. 2. Choice Hotels’ production manager proposes allocating overhead by direct labor hours instead, since the different models require different amounts of labor. How much overhead would be allocated to each guest room (per unit and in total) using this method? Show all supporting calculations.

Questions: 5. At the current selling price, is the company covering its true cost of production of the Presidential Suite? Briefly discuss. 6. What should price should Choice Hotels charges for the Presidential Suite? 7. Assume that the Presidential Suite has the same profit margin as the Standard Guest Room. What should its selling price be? Show all calculations. 8. What should Choice Hotels do if the quantity of the Presidential Suite Guest Rooms sold at the new price falls to 10 per year? 9. What should Choice Hotels do if the price of the Presidential Suite cannot exceed $1,050,000? 10. At a selling price of $1,050,000 each, what is the breakeven unit volume for the Presidential Suite?

Answer Questions 1 to 2 here.

Answer Questions 3 to 4 here.

Answer Questions 5 to 10 here.

Budgeting

Choice Hotels Marriott International (2017/2016)-1 (2017/2016)-1
Ratios 2017 2016 2017 2016 Percent Change from 2016 to 2017 Percent Change from 2016 to 2017
Quick ratio = (cash + cash equivalence + receivables) / current liabilities
Acid test ratio = current assets / current liabilities
Debt ratio = total liabilities / total assets

Questions: 1. Quick ratios between 0.5 and 1 are considered satisfactory, as long as the collection of receivables is not expected to slow. Does the client, Choice Hotels, have enough current assets to meet the payment schedule of current liabilities with a margin of safety? 2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition by the equity firm and why?

Answer Questions 1 to 3 here.

Profitability

Choice Hotels Marriott International (2017/2016)-1 (2017/2016)-1
Ratios 2017 2016 2017 2016 Percent Change from 2016 to 2017 Percent Change from 2016 to 2017
Return on equity (ROE) = net income / total equity
Return on assets (ROA) = net income / total assets

Questions: 1. The return on assets ratio tells us the profit generated by each dollar in assets. You will want to compare this ratio to Choice Hotels’ historical performance and to Marriott International to understand if it is an acceptable ratio. Is the return on assets ratio acceptable? Why or why not? 2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition? Why? 3. Based on the financial statement analysis, earnings per share analysis, budgeting ratios, and the above profitability ratios, which company would you invest in and why?

Answer Questions 1 to 3 here.

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Analyzing Financial Reports

3501 Development Blvd.

Baltimore, MD 21230

800-888-8682

ext. 22720

consult@mcs.com

marylandcreativellc.com

MARYLAND CREATIVE SOLUTIONS

Project 3: Analyzing Financial Reports

Report to MCS Management

[Student’s Name Here]

[Date Here]

[Faculty Name Here]

MBA 620-[Section Number Here]

Compare Business Performance Using Financial Statements

[In this space, write about the financial comparison you made between Choice Hotels and Marriott International. Refer to the financial statements as necessary. Use citations where appropriate.]

Analyze Cost and Investment Decisions

[In this space, write about your experience analyzing cost allocation methods. Explicitly mention your recommendation and elaborate on why you made that recommendation. Use citations where appropriate.]

Complete a Capital Budget and Profitability Analysis

[In this space, write about the financial ratio comparison you made between Choice Hotels and Marriott International. Explain the importance behind computing these ratios and their significance to investors. Refer to the financial statements as necessary. Use citations where appropriate.]

Mergers and Acquisitions

[In this space, elaborate on your discussion with the other analysts. Explain the benefits and risks to mergers and acquisitions for an investor. Refer to the financial statements as necessary. Use citations where appropriate.]

References

[Use APA style references. You should c

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excellent progress

Start Here

You have made excellent progress on the Choice Hotels project, and your contributions at the recent ethics retreat were well received! Senior Partner Frank Marinara and Managing Director Elisa Izuki have discussed your work and have decided to promote you to senior analyst. “Congratulations!” Frank says. “Because of your great work with Choice Hotels, the client would like us to continue working with them on a new project. I’ll send over the project details to you via email.

This is great news! You are excited about your new title and the progress of MCS and are eager to prove why you were selected for promotion.

INBOX (1 NEW EMAIL)

From: Frank Marinara, Director of Finance

To: You

I know you will do an outstanding job in your new role and I am looking forward to seeing you continue your positive momentum. I am also being promoted to director, and Elisa will now be serving in a senior director capacity.

This should be a fitting project for you as our newest senior partner. Choice Hotels would now like MCS to complete a financial statement comparison with their largest competitor, Marriott International. Since we need to know how Choice Hotels compares with Marriott, I need you to compare Choice Hotels’ 10-K reports that we gathered in the last project with Marriott International’s 10-K reports. You’ll need to complete a horizontal and vertical financial statement analysis using the 10-K reports from Choice and Marriott.

Choice Hotels is also interested in bolstering their assets to make themselves more attractive to potential investors. As they build these assets, they will need our help analyzing different cost allocation methods and recommending the best one for their circumstances.

Finally, we will need to look at Choice Hotels’ latest 10-Q reports and complete a budget and forecast model to see if they would be an attractive acquisition for a large equity firm. And of course, you will need to host a meeting with the other finance and accounting analysts to discuss whether the equity firm would be more likely to acquire Choice or Marriott.

I’ll need all of these assignments done within two weeks and suggest you begin right away.

Really proud of your efforts here,

Frank

rank Marinara Contact Information

Click Step 1 to get started!

When you submit your project, your work will be evaluated using the competencies listed below. You can use the list below to self-check your work before submission.

· 1.3: Provide sufficient, correctly cited support that substantiates the writer’s ideas.

· 1.6: Follow conventions of Standard Written English.

· 3.1: Identify numerical or mathematical information that is relevant in a problem or situation.

· 3.2: Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

· 3.3: Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

· 3.4: Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

· 10.2: Analyze financial statements to evaluate and optimize organizational performance.

· 10.3: Determine optimal financial decisions in pursuit of an organization’s goals.

· 10.5: Develop operating forecasts and budgets and apply managerial accounting techniques to support strategic decisions.

· 12.1: Assess market risk and opportunity.

· 13.1: Identify and analyze new opportunities.

Step 1: Compare Business Performance Using Financial Statements

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Choice Hotels International (NYSE:CHH) would like to know how their market share compares with Marriott International (NASDAQ:MAR), their largest competitor in North America. This comparison will help Choice Hotels develop a strategy to gain a competitive advantage over Marriott.

Choice would like MCS to first complete a financial statement analysis with Marriott International.

Dialogue with Frank Marinara

“Use the Choice Hotels 10-K reports we gathered in the last project and compare them with Marriott International’s 10-K reports,” Frank tells you. You will need to find Marriott’s 10-K reports the same way you did for Choice Hotels, by accessing the Securities Exchange Commission (SEC) website.

Frank continues, “Choice has asked for advice on attracting new investors. You need to complete a horizontal analysis and vertical analysis by comparing financial reports and measuring the difference between the two companies.” Frank recommends using financial ratios for analysis and cost-volume-profit analysis concepts for this task. “I’ll email you an Excel Workbook to complete for this project.”

INBOX (1 NEW EMAIL)

From: Frank Marinara, Director of Finance

To: You

For this assignment, please complete the Project 3 Excel Workbook with information from the income statement, balance sheet, and statement of cash flow portions of Choice Hotels’ and Marriott International’s 10-K reports. The file contains instructions, an income statement template, balance sheet template, and a cash flow template. I have also posed questions for you to answer so I can provide Choice Hotels with suggestions on improving their financial performance.

Thanks,

Frank

 

ATTACHMENTS

Choice Hotels Workbook.xlsx

rank Marinara Contact Information

Answer the associated questions on the Income Statement, Balance Sheet, and Cash Flow worksheets within the Project 3 Excel Workbook to help Choice Hotels make sound investment decisions. When you have finished, submit the workbook to the submission folder located in the final step of this project. You should aim to complete this step during Week 6.

Now that you have completed Step 1, proceed to Step 2, where you will analyze potential investment decisions.

Step 2: Analyze Cost and Investment Decisions

The client, Choice Hotels, is also interested in bolstering their assets and improving their costing model to account for these assets. Choice has been building their own guest rooms and selling them to Choice Hotels franchise owners. The company allocates overhead costs equally to each guest room and prices them to achieve a greater profit on the higher-priced guest room. Choice Hotels is concerned that this traditional costing model may not be accurately assigning costs based on activities, and the selling price of one of its guest rooms, Presidential Suite, may not be covering its true cost. You will need to know the marginal costsincremental costscost of equitycost of debt, and the pros and cons of debt vs. equity to advise Choice Hotels on resolving the company’s costing issue with the Presidential Suite guest room.

In addition, you will need to understand the concepts of activity-based costing (ABC)production cost allocation, and breakeven to put together an analysis that compares costing models that account for Choice’s guest room sales. Two cost allocation methods of production are being considered. Frank needs your help determining if overhead cost allocation (Choice’s traditional model) or ABC (a new model) is best to use in this case.

Using the same Project 3 Excel Workbook you used in Step 1, complete the Cost and Investing worksheet. The worksheet contains information that will aid in comparing the cost allocation methods for building guest rooms for Choice Hotels’ franchise owners. When you have finished, submit the workbook to the submission folder located in the final step of this project. Aim to complete this step during Week 6.

Then proceed to Step 3, where you will review and analyze the concepts of budgeting, forecasting, and profitability.

Step 3: Complete a Capital Budget and Profitability Analysis

Frank recently informed you that a large equity firm may be interested in acquiring either Choice Hotels or Marriott International. The client, Choice Hotels, would like to know if they would be a more attractive target for an acquisition than their competitor, Marriott International. Now you will need to determine if it would be more beneficial for the equity firm to acquire Choice Hotels or Marriott International. You will need to look at Choice Hotels’ and Marriott International’s latest 10-K reports and complete a budget and profitability analysis to see which acquisition, if any, should take place.

Since you are now a senior analyst, you know you have to learn more about capital budgeting analysis and profitability ratios to be able to develop a capital budget and profitability analysis.

You will also need to calculate the liquidity ratios and debt-management ratios to determine whether it is a viable option for the large equity firm to acquire Choice Hotels or Marriott International.

Using the same Project 3 Excel Workbook you used in Steps 1 and 2, complete the Budgeting and Profitability worksheets, where you will calculate the quick ratio, acid test ratio, debt ratio, basic earnings power ratio, return on equity, and return on assets ratios and answer questions to determine if the equity firm should acquire Choice Hotels or Marriott International. When you have finished, submit the workbook to the submission folder located in the final step of this project during Week 6.

Now that you have completed Step 3, proceed to Step 4, where you will discuss mergers and acquisitions with other finance and accounting analysts.

Step 4: Discuss Mergers and Acquisitions

Discussion with Colleagues

Earlier, Frank mentioned you would need to host a meeting with the other finance and accounting analysts at MCS to discuss the possibility of a large equity firm acquiring Choice Hotels or Marriott International and to determine the feasibility of these possibilities.

Assuming you and your MCS colleagues are attending the meeting, go to the Mergers and Acquisitions Discussion, and complete the following tasks:

· Discuss whether the large equity firm is more likely to acquire Choice Hotels or Marriott International and provide the reasons for your stance. Give credit to any sources you use to support your statements.

· Discuss how current Choice Hotels investors might be affected by an acquisition by a large equity firm. Give credit to any sources you use to support your statements.

· Later in the week, after you are back in your office, you have a follow-up discussion with your MCS colleagues in an effort to summarize the key lessons from your discussion on mergers and acquisitions at the meeting. Respond to your colleagues’ original discussion posts and give credit to any sources you use to support your statements.

During Week 7, submit one original posting of at least 250 words in the Mergers and Acquisitions Discussion by Saturday and post two responses of at least 50 words each to other discussion participants by Tuesday. See MBA discussion guidelines.

When you have finished Step 4, proceed to Step 5, where you will review your recent findings in a report to management.

Step 5: Prepare a Report to Management

At the conclusion of your project, Frank requests a report based on your analysis and recommendations in the previous steps. He is planning on using this report to provide the client, Choice Hotels, with guidance on a potential acquisition. This report, along with citations for any sources you use, should be about three to five pages. The report should highlight your analysis and recommendations based on the work you completed in the workbook. Be creative and use charts, graphs, or any other tools you feel would be useful to convey your analysis and recommendations. Post your report to management in the submission folder located in the final step of this project.

Complete your report to management during Week 7 using this template.

When you have completed Step 5, proceed to Step 6, where you will submit all work for Project 3.

Step 6: Submit Your Work

Take note of the recommended delivery dates in the table below.

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aryland Creative Solutions

Recommended Project Delivery

Step Submission week Deliverable File-naming protocol/Submission instructions
Step 1 Week 6 Income Statement, Balance Sheet, and Cash Flows worksheets lastname_firstname_financial_statement_analysis.xlx
Step 2 Week 6 Cost and Investing worksheet lastname_firstname_investing_Decisions_ worksheet.xlx
Step 3 Week 6 Budget and Profitability worksheet lastname_firstname_budget_and_profitability_analysis.xlx
Step 4 Week 7 Discuss mergers and acquisitions Submit discussion post in the Mergers and Acquisitions Discussion section in Step 4.
Step 5 Week 7 Report to management lastname_firstname_report_to_management.docx

ALWAYS DO YOUR BEST @ MCS

When you submit your project, your work will be evaluated using the competencies listed below. You can use the list below to self-check your work before submission.

· 1.3: Provide sufficient, correctly cited support that substantiates the writer’s ideas.

· 1.6: Follow conventions of Standard Written English.

· 3.1: Identify numerical or mathematical information that is relevant in a problem or situation.

· 3.2: Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

· 3.3: Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

· 3.4: Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.

· 10.2: Analyze financial statements to evaluate and optimize organizational performance.

· 10.3: Determine optimal financial decisions in pursuit of an organization’s goals.

· 10.5: Develop operating forecasts and budgets and apply managerial accounting techniques to support strategic decisions.

· 12.1: Assess market risk and opportunity.

· 13.1: Identify and analyze new opportunities.

“Order a similar paper and get 20% DISCOUNT on your FIRST THREE PAPERS with us Use the following coupon “GET20”

 

progress of MCS

You have made excellent progress on the Choice Hotels project, and your contributions at the recent ethics retreat were well received! Senior Partner Frank Marinara and Managing Director Elisa Izuki have discussed your work and have decided to promote you to senior analyst. “Congratulations!” Frank says. “Because of your great work with Choice Hotels, the client would like us to continue working with them on a new project. I’ll send over the project details to you via email.

This is great news! You are excited about your new title and the progress of MCS and are eager to prove why you were selected for promotion.

“Order a similar paper and get 20% DISCOUNT on your FIRST THREE PAPERS with us Use the following coupon “GET20”

 

structure of risk-free interest rates

Suppose the term structure of risk-free interest rates is as shown below:

Term 1 year 2 years 3 years 5 years 7 years 10 years 20 years
Rate (EAR, %) 1.99 2.41 2.74 3.32 3.76 4.13 4.93

· a. Calculate the present value of an investment that pays $1000 in two years and $2000 in five years for certain.

· b. Calculate the present value of receiving $500 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average of the rate in year 3 and year 5.)

· *c. Calculate the present value of receiving $2300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)

31.

What is the shape of the yield curve given the term structure in Problem 29? What expectations are investors likely to have about future interest rates?

2.

Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods):

· a. What is the maturity of the bond (in years)?

· b. What is the coupon rate (in percent)?

· c. What is the face value?

6.

Suppose a 10-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for a price of $1034.74.

· a. What is the bond’s yield to maturity (expressed as an APR with semiannual compounding)?

· b. If the bond’s yield to maturity changes to 9% APR, what will the bond’s price be?

7.

Suppose a five-year, $1000 bond with annual coupons has a price of $900 and a yield to maturity of 6%. What is the bond’s coupon rate?

10.

Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%.

· a. Is this bond currently trading at a discount, at par, or at a premium? Explain.

· b. If the yield to maturity of the bond rises to 7% (APR with semiannual compounding), what price will the bond trade for?

· 28.

· The following table summarizes the yields to maturity on several one-year, zero-coupon securities:

Security Yield (%)
Treasury 3.1
AAA corporate 3.2
BBB corporate 4.2
B corporate 4.9

· a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?

· b. What is the credit spread on AAA-rated corporate bonds?

· c. What is the credit spread on B-rated corporate bonds?

· d. How does the credit spread change with the bond rating? Why?

30.

HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings:

1.

The figure below shows the one-year return distribution for RCS stock. Calculate

· a. The expected return.

· b. The standard deviation of the return.

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30.

What does the beta of a stock measure?

35.

Suppose the market risk premium is 5% and the risk-free interest rate is 4%. Using the data in Table 10.6, calculate the expected return of investing in

· a. Starbucks’ stock.

· b. Hershey’s stock.

· c. Autodesk’s stock.

37.

Suppose the market risk premium is 6.5% and the risk-free interest rate is 5%. Calculate the cost of capital of investing in a project with a beta of 1.2.

11-2.

You own three stocks: 600 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5000 shares of Colgate-Palmolive. The current share prices and expected returns of Apple, Cisco, and Colgate-Palmolive are, respectively, $500, $20, $100 and 12%, 10%, 8%.

· a. What are the portfolio weights of the three stocks in your portfolio?

· b. What is the expected return of your portfolio?

· c. Suppose the price of Apple stock goes up by $25, Cisco rises by $5, and Colgate-Palmolive falls by $13. What are the new portfolio weights?

· d. Assuming the stocks’ expected returns remain the same, what is the expected return of the portfolio at the new prices?

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