...__________________________ (Name of the Institution) __________________________ (Address) TO WHOM IT MAY CONCERN : We, the senior students of Finance & Treasury Management (FTM) under the College of Management and Entrepreneurship of Pamantasan Ng Lungsod Ng Maynila hereby respectfully request for the conduct of research / study about the following topics that concern your prestigious company, to wit: 1. Vision, Mission, Objectives, and Philosophy 2. Nature of Business 3. Corporate size 4. Rank in the industry as to profitability, liquidity, and solvency 5. Finance organizational structure and composition 6. Treasury department’s role, function, and delimitation of authority 7. Set qualification standards in the appointment or designation of a treasury manager 8. Treasury manager’s duties and responsibilities 9. Usual management practices that a corporate treasurer undertakes to ensure the company’s profitability 10. How does the treasury manager contribute towards the company’s growth 11. What are the common problems that the treasury manager encounters and how he resolves them? As such, the data and information that you may possibly disclose to us will be utilized in compliance with the terminal requirement of our currently being undertaken subject entitled TREASURY MANAGEMENT. Rest assured that all of your response to the aforesaid queries and other concerns will be used for academic purposes only, and shall be treated...
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...CHAPTER 15 Debt and Equity Capital Review Questions 15–1 A trust indenture is drawn to protect the position of bondholders by imposing restrictions upon the borrowing corporation. One of the most common of these restrictions is that the company must not declare dividends that would cause the working capital to fall below a specified amount. An overly generous dividend policy could leave the company so short of cash as to endanger the position of bondholders. 15–2 Restrictions commonly imposed on a borrowing company by long-term creditors relate to (a) dividend payments, (b) acquisition of property and equipment, (c) increases in managerial compensation and (d) acquisition of additional debt. Such actions are usually permitted only if they will not reduce the current ratio and amount of working capital below specified levels, or increase the debt to equity ratio above a specified level. Creation of a sinking fund is another common requirement designed to assure that cash will be available to pay the long-term debt at maturity. 15–3 The trustee protects the interests of the bondholders by accounting for the issuance and redemption of bond certificates, determining that provisions of the borrowing agreement are observed by the corporation, and reporting periodically on the amount of the liability and of any related sinking fund. This work by the trustee leaves little opportunity for either error or fraud in the issuance, servicing, or redemption of bonds...
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...CHAPTER 11 Corporations: Organization, Share Transactions, Dividends, and Retained Earnings ASSIGNMENT CLASSIFICATION TABLE Brief Exercises Do It! Exercises 1, 2, 3, 4, 5, 6 1 1, 2 1, 2 Record the issuance of ordinary shares. 7, 8, 9, 10, 11 2, 3, 4 3 *3. Explain the accounting for treasury shares. 12, 13, 14 5 4 *4. Differentiate preference shares from ordinary shares. 15 6 *5. Prepare the entries for cash dividends and share dividends. 17, 18, 19, 20, 21, 22 7, 8, 9 *6. Identify the items that are reported in a retained earnings statement. 16, 23, 24 Questions *1. Identify the major characteristics of a corporation. *2. 7. Prepare and analyze a comprehensive equity section. *8. Compute book value per share. B Problems 2, 3, 4, 7, 8, 11, 12 1A, 3A, 6A 1B, 3B 5, 7, 9 11, 12 2A, 3A, 6A 2B, 3B 6, 7, 10, 11, 12, 24 1A, 3A, 6A 1B, 3B 5, 6 13, 14, 15, 16, 25 4A, 5A, 7A 4B, 6B 10, 11 7 17, 18 5A 5B, 6B 8 10, 11, 19, 20, 21, 22, 23, 25 1A, 2A, 3A, 4A, 5A, 6A, 7A, 8A 1B, 2B, 3B, 4B, 5B, 6B, 7B Describe the use and content of the statement of changes in equity. *9 A Problems 12 Study Objectives 9A 25, 26 13 23, 24, 25 3A, 8A 3B, 7B *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter...
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...Preferred Stock, ($100 par value, 5% noncumulative, 50,000 shares authorized, 10,000 shares issued and outstanding) $1,000,000 Common Stock ($10 par value, 200,000 shares authorized, 100,000 shares issued and outstanding) $1,000,000 Paid-in Capital in Excess of par, Common 150,000 Retained Earnings 700,000 The following events occurred during 2014 and were not recorded: a. On January 1, Frick declared a 5% stock dividend on its common stock when the market value of the common stock was $15 per share. Stock dividends were distributed on January 31 to shareholders as of January 25. b. On February 15, Frick reacquired 1,000 shares of common stock for $20 each. c. On March 31, Frick reissued 250 shares of treasury stock for $25 each. d. On July 1, Frick reissued 500 shares of treasury stock for $16 each. e. On October 1, Frick declared full year dividends for preferred stock and $1.50 cash dividends for outstanding shares and paid shareholders on October 15. f. One December 15, Frick split common stock 2 shares for 1. g. Net Income for 2014 was $275,000. Requirements: a. Prepare journal entries for the transactions listed above. b. Prepare a Stockholders’ section of a classified balance sheet as of December 31, 2014. Common Stock 100,000.00 Stock Dividend 5% Stock Dividend 5,000.00 Total No of common Stock 105,000.00 Preferred Stock 10,000.00 Par Value 100.00 Divivdend Rate 5% Preference Dividend 50,000.00 Cash Dividends on Common Stock @1.5(105,000*1.5) 157,500.00 ...
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...outstanding..................$2,600,000 c)= 0.60 x 360,000 = 216,000 $ d) It is likely that the company has repurchased its shares and retired them. 8.10 a. Annual dividend per share= $3.25 b. Preferred dividends= $3,900 Common dividends= $4,500 Total dividends received= $8,400 Exercise 8.18 a. 800 shares after the stock split b. Dividend income before the stock split= $3,600 $4.50 per share c. 33 1/3% stock dividend would accomplish the same Problem 8.22 a. Dr. Treasury stock- 330,000 Cr. Cash 330,000 b. Shares outstanding at beginning of year 574,600 shares purchased for treasury in first quarter (4,400) Shares outstanding during second quarter 570,200 Cash dividend per share *1.20 Dividend paid at the end of second quarter $684,240 c. assets=liabilities+owners equity<-net income=revenues-expenses cash Treasury stock +117,000 +105,000 additional paid in capital +12,600 d shares outstanding second quarter 570,200 treasury shares sold in third quarter 1,400 shares outstanding in fourth quarter 571,600 cash dividend per share *1.20 dividend paid at the end of fourth quarter 685,920 e...
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...Case Study: Wrigley Jr. Company – Capital Structure Case Problem: The managing partner of Aurora Borealis LLC, a hedge fund that strategized to focus on distressed companies, asked an associate to initiate the research for a potential investment in Wrigley. Aurora specialized in finding opportunities for corporate restructures, to invest significantly in the stock of the target firm and then persuade management to restructure. They noted that Wrigley had about $13.1 billion in common equity and did not have any debt on their balance sheet. Chandler was asked to perform an analysis to support the assumption that Wrigley can borrow $3 billion at a credit rating of BB to B, to yield 13%. Over the last few years, Wrigley has had revenue growth at an annual compound rate of 10% (earnings at 9%) which reflected the introduction of new products and foreign expansion. The firm has always been conservatively financed and had stock that was outperforming the S&P 500 composite index. The proposed leverage recapitalization would have Wrigley borrow $3 billion and use it to pay an equivalent dividend or repurchase an equivalent value of shares. This could increase the value of the firm by shielding the cash flows from taxes. An additional assumption is the debt rating for Wrigley, after they assume the debt would they be able to manage the interest payments. How does Chandler know that a rating of BB/B would be likely. Additionally, Chandler knew that the maximum value...
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...Analysis 1. Describe Midland, its capital planning model and Janet Mortensen's role in the case. Midland Energy Resource, Inc. has three major divisions: Exploration & Production (E&P), Refining and Market (R&M), and Petrochemicals. E&P division provides the most profit for Midland. R&M is the largest division in Midland by revenue. Petrochemicals is the smallest division in Midland. Midland’s financial strategy in 2007 consisted of four principals: funding significant overseas growth, investing in value-creating projects, optimizing corporate capital structure, and repurchasing undervalue shares. Janet Mortensen, senior analyst reporting to CFO, takes role of estimating Midland’s cost of capital for various analyses, both corporate and division level, throughout the company. Her main method is using Weighted Average Cost of Capital (WACC) formula to evaluate required Cost of Capital estimate. 2. Briefly explain the meaning of the following concepts: cost of capital, WACC, and CAPM. Cost of Capital: the minimum acceptable rate of return for new investments in the corporation. The opportunity cost of investing. WACC: Weighted Average Cost of Capital, a calculation of company’s cost of capital, which is seemed as composite cost of debt and equity. Every category of capital in WACC is proportionally weighted. CAPM: Capital Asset Pricing Model, a theory representing the financial market behavior. Used to estimate the cost of equity. 3. Address...
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...projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. In the case, Janet Mortensen prepared the annual cost of capital estimates for Midland Energy Resources Inc. and each of its three divisions. Estimates of the cost of capital were used in many analyses within Midland, including asset appraisal for both capital budgeting and financial accounting, performance assessments, M&A proposal, and stock repurchase decisions. No, they were using the formula for WACC to estimate the cost of capital. 2. Assume the business is on-going for a long period of time. We use 4.98%, which is the 30-year yield to maturity for U.S. Treasury bonds in January 2007 in Table 2, as the risk-free rate. Assume the Spread to Treasury of the company is 1.62%, which is equal to the Spread to Treasury of the consolidated part. According to the case, “Mortensen compute the cost of debt for each division by adding a premium, or spread, over U.S. Treasury securities of a similar maturity,” we can get: Rd=Rf+Spread to Treasury The rate of debt for the company: Rd=4.98%+1.62%=6.6% From Exhibit 5, we can get D/E=59.3%, E=D/59.3% D/V=D/(D+E)=D/(D/59.3%+D)=0.3722 E/V=1-0.3722=0.6278 For EMRP, Midland’s beta was 1.25, and they used an equity market risk premium of 5%. Determining the Re=Rf+beta*(EMRP)=4.98%+1.25*5%=11.23% Re=Rua+D/E(1-Tc)(Rua-Rd) 0.1123=Rua+59.3%*(1-40%)*(Rua-6...
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...Midland Energy resource, Inc. i. 1 Let’s assume that the Midlands borrows its debt at the yield rate of US Treasury Bonds, which is theoretically the minimum choice, and Midlands is going to pay back the debt in a recurring annual payment. We can therefore estimate the amount of annuity that Midland is going to pay back annually. Although we are only going to analyze the single debt option, we should nonetheless keep in mind that Midlands may choose to use a combined debt strategy, which is to borrow both the long-term and short-term debt. Table 1.1 Payment Period Interest Rate Total Net Debt Amount to Pay for Debt/yr 1 yr 10 yrs 30 yrs 4.54% 4.66% 4.98% $80,000 $80,000 $80,000 $83,632 $10,190 $5,192 From table 1.1, we tell that 1-year debt is not a good choice, since about 33% of revenue (i.e. $83K out of $250K) will be used to clear the debt, which will dramatically increase the risk of default. The 10-year and 30-year debts are henceforth both feasible choices, but our suggestion is to choose the 10-year debt so as to reduce the cost of debt. We choose to use 4.66% as the RFR (Rf). ii. Table 2.1 Credit Rating 10-yr US Treasury Spread to Treasury Cost of Debt Consolidated E&P R&M Petrochemicals A+ A+ BBB A4.66% 4.66% 4.66% 4.66% 1.62% 1.60% 1.80% 1.35% 6.28% 6.26% 6.46% 6.01% Midland Energy resource, Inc. 2 Given that the lower the credit rating is, the riskier the business would be in terms of the danger to default. A normally larger risk premium is added...
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...discusses that because of bad investment in the subprime mortgage market, insolvency, and shattered investor confidence led to the inevitable downfall of Lehman. At the beginning, Lehman was looking for 30 to 50 billion dollars in financial support by Warren Buffett. Moreover, Lehman tried to seek the financial assistance of the Korea Development Bank. The bank also wanted the government to provide financial assistance. But the results have failed. On September 12, 2008, many different banks including bank of America, JP Morgan, Goldman Sachs, Merrill Lynch, and Barclays met at the Federal Reserve in New York to try to come up with a way to save Lehman Too Big to Fail chronicles the 2008 financial meltdown, focusing on the actions of U.S. Treasury Secretary Henry Paulson (William Hurt) to contain the problems during the period of August 2008 to October 3, 2008. Dick Fuld (James Woods), CEO of Lehman Brothers, is seeking external investment, but investors are...
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...Midland's cost of capital 1. I choose the rate of 30-year U.S. Treasury bonds in 2007 (4.98%) as the risk free rate in the 2007 WACC calculations. The reason is that majority of large firms and financial analysts report using long-term yields for bonds to determine the risk-free rate. Rf=0.0498 2. Cost of debt, which is determined by adding the spread to Treasury (1.62%) to the rate of 30-year treasury bonds in 2007. Rd=0.0498+0.0162=0.066 3. Cost of equity, the EMRP (5%) and D/E (59.3%) was taken out of the context of the case. βa=Equity Beta/(1+D/E)= 1.25/(1+0.593)= 0.78 According to Table1, consolidated D/V is 42.2%, E/V is 57.8%, βe= βa*(1+D/E)= 0.78*(1+0.422/0.578)=1.35 Re=Rf+ βe *EMRP= 0.0498+(1.35*0.05)= 0.1173 4. WACC, the tax rate (38.58%) was from the 2006 taxes paid. WACC= D/V*(1-T)*Rd+E/V*Re= 0.422*(1-0.3858)*0.066+0.578*0.1173=8.49% The division costs of capital Exploration & Production 1. I also use of 30-year U.S. Treasury bonds in 2007 (4.98%) as the risk free rate, Rf=0.0498. 2. Cost of debt, Rd=Rf+ the spread to Treasury(Exploration & Production)=0.0498+0.016=0.0658 3. Cost of equity, EMRP=5%. Since we can’t get the beta of E&P, we should use the information of comparable companies on Exhibit 5 to get average asset beta, and then to calculate the beta of E&P. βa=Equity Beta/(1+D/E)= 1.15/(1+0.398)= 0.82 According to Table1, consolidated D/V is 46%, E/V is 54%, βe= βa*(1+D/E)= 0.82*(1+0.46/0.54)=1.52 Re=Rf+...
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...There are many different regulatory bodies that have several different purposes and functions the ones I have listed are not in any particular order. For example the Internal Revenue Service also known as IRS is the federal agency which is responsible for enforcing and administering the United States Department of Treasury revenue laws through the collection and assessment of taxes, determination of pension plan qualifications and even related activities (www.irs.gov). Another is the Securities and Exchange Commission known as the SEC; this is an independent federal agency which is responsible for regulating securities markets where stocks and bonds of major companies are traded. There is also the Financial Accounting Standards Board the FASB that is the largest independent US body that is responsible for establishing and interpreting the accounting standards and practices that are known as the Generally Accepted Accounting Principles (GAAP). The American Institute of Certified Public Accountants (AICPA) is a regulatory body that develops standards for auditing and other services performed by certified public accountants. The Governmental Accounting Standards Board (GASB) is the entity which is responsible for setting the generally acceptable accounting principles used by state and local governments and just like the aforementioned Securities and Exchange Commission; the GASB is a non-governmental, private organization. One regulatory body has a name that is sometimes jokingly...
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...guidelines for explaining why the omission of this income would be unethical. Both sources also explain what is expected of a tax preparer (practitioner) in a situation such as this. Section 10.21 of Circular 230 states that if a practitioner knows a client has not complied with the revenue laws of the United States, that practitioner must then advise the client of the consequences as provided under the Code and regulations of such omission. Section 10.22 of Circular 230 would also apply to the given scenario. It states that a practitioner must exercise due diligence “in preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters.” (Treasury Department Circular No. 230, pg. 19, 2014) We as practitioners in this situation would not be applying proper due diligence if we were to carry forward in filing the tax return for The Gallery. We would be facing penalties, and even the possibility of losing our CPA license depending on the severity of the omission. AICPA Code Rule 201, General Standards is the corresponding rule for Section 10.22 of Circular 230. It includes four standards for professional practice for all AICPA members: professional competence, due professional care, planning and supervision, and sufficient relevant data. Adelle should discuss with the general manager what the proper reporting of this credit should be. She should explain the correct treatment and...
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...Book Review: Andrew Ross Sorkin's Too Big To Fail The financial struggles of 2008 led to myriad books on why the crack-up occurred, and many have been reviewed here. Andrew Ross Sorkin, a writer for the New York Times, approaches what happened differently. He has written a very interesting behind-the-scenes account of the people within government and finance who saw the crisis up close. For those interested in what went down behind closed doors, Sorkin's “ Too Big To Fail” is essential. Thanks to his global access to the individuals involved, the interested reader can expand his or her knowledge about the events behind the events. Too Big To Fail begins in riveting fashion at J.P. Morgan CEO Jamie Dimon's Park Avenue apartment the day before the collapse of Lehman Brothers. Having spent part of the previous evening at the New York Fed, Dimon knew better than most what was ahead, and in a conference call with his top lieutenants, Dimon dismissed the view - one held by Lehman CEO Richard Fuld no less - that the prominent investment bank would be saved by Washington. Dimon's take was "That's wishful thinking. There is no way, in my opinion, that Washington is going to bail out an investment bank. Nor should they (my emphasis)." Instead, Dimon told the listeners on the call that "We need to prepare right now for Lehman Brothers filing. And for Merrill Lynch filing. And for AIG filing. And for Morgan Stanley filing." Before each company mention Dimon paused, then paused...
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...Medicare claims. 3.3 million Social Security and SSI claims and 326,000 SSI aged claims, (Social Security, 2011). These claims have to go to procedures that can take months to be approval. During these procedures, many more applicants are eligible to apply for social security and more money is pay to beneficiaries. In 2011, social security will collect $45 million less in payroll that it pays out in retirement, disability and survivor benefits, according to the nonpartisan Congressional Budget Office, (Ohlemacher, 2011). 54 million people receive retirement, disability or survivor benefits with an average payment of $1,076 a month, (Ohlemacher, 2011). Social Security Administration has being able to save and invest taxpayers money into U.S. Treasury department. The money save...
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