The evaluation of the work, especially the qualitative questions depends on the organization of the material and the depth of the answers. The quantitative questions should show the computations/process not just an answer. Each question should be answered thoroughly discussing concepts, which were discussed in class. It is better to write too much rather than too little.

1. For Netflix, Inc. (NFLX) and The Home Depot, Inc. (HD) discuss what you believe has been the decision making that was involved with dividends on common stock. Provide financial metrics that support your answer. You may wish to look at dividendinvestor.com, as well as, Yahoo! Finance for financial information.

2. For the same two companies, NFLX and HD discuss the investing and financing decisions that relate to working capital management. Provide financial metrics that relate to working capital management to support your discussion.

3. Suppose that you are a financial analyst for Publix supermarkets.You have been tasked with presenting a proposal for a 15-store expansion of their Sabor stores. Discuss this proposal in connection with the following concepts discussed in class; capital budgeting and the weighted average cost of capital. Be sure to discuss in context. No calculations are necessary.

4. Brown Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 60 percent equity and 40 percent debt; it has 1,000,000 shares of common equity outstanding; and its net income is $8 million. The company forecasts that it would require $10 million to fund all of its profitable (that is, positive NPV) projects for the upcoming year.
Required:
a) If Brown follows the residual dividend model, what will be the company’s dividend per share?
b) Suppose that Brown’s management wants to maintain the $3.00 DPS. In addition, the company wants to maintain its $10 million capital budget. What is the minimum dollar amount of new common stock that the company would have to issue in order to meet its objectives?

5. You are the CFO of SlimBody, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 5,000 exercise machines, and the price of each machine is $2,500.The annual sales of accessories will be $600,000, and the operating expenses of running the store including labor and rent, will amount to 50 percent of the revenues from the exercise machines. The initial investment in the store will equal $30 million and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $2 million in additional working capital immediately, and recover it at the end of the investment. Your firm’s marginal tax rate is 30 percent. The opportunity cost of opening up the store in 10 percent. At the end of the store’s life, the company expects to sell various fixtures and equipment for $2,000,000.
Required:
a) Determine the payback period for the project.
b) Determine the net present value of the project.
c) Determine the internal Rate of return of the project.
d) Explain why you would or would not recommend the project.

6.Cager Inc (CI) sells its stainless steel products on terms of “2/10, net 40”. CI is considering granting credit to retailers with total assets as low as $500,000. Currently the lowest asset limit is $750,000. CI believes sales will increase $8 million from the new credit group but the average collection period for this new group will be 70 days versus the current average collection period of 40 days. If management estimates that 30% of the new customers will take the cash discount; but 10% of the new business will be written off as bad-debt loss.
Assume CI’s variable cost ratio is 0.65 and its required pretax rate of return on current assets investment is 12%. CI also estimates that an additional investment in inventory of $500,000 is necessary for the anticipated sales increase.
Should CI lower its credit standards? Show computations.

7. Wade Retailers, a nationwide department store chain, currently processes all of its credit sales payments at its Chicago headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in 10 western states. With the lockbox system, average mailing time for customers from this region would be reduced from 4.5 days to 1.5 days. Check clearing time would also be reduced from 2 days to 1 day. Annual collections from the western region are $500 million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm’s Chicago Bank by $1,000,000 and reduce annual payment processing costs at the Chicago office by $350,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 10 percent before taxes. The Los Angeles bank has agreed to process Wade’s customer payments for an annual fee of $600,000. What are the annual net pretax benefits to Jackson of establishing a lockbox system with the San Francisco bank (assume 365 days per year)?

8. IBC Corporation is considering what level of current assets to maintain, as well as whether to use more or less long-term debt, as opposed to short-term debt.
Factors to consider:
• Fixed assets - $6,000,000
• Earnings before interest and taxes - $ 900,000
• Tax rate – 25 percent
• Optimal capital structure – 60 percent equity, 40 percent debt
• Interest on short-term debt – 5 percent
• Interest on long-term debt – 9 percent
• Current asset level possibilities. Plan 1 - $1,000,000 Plan 2 - $1,500,000.
• Level of short-term debt possibilities. Plan 1 – 75 percent of total debt. Plan 2 – 20 percent of total debt.
Required:
a) Calculate the return on equity for Plan 1 and Plan 2.
b) Explain which plan is the more risky.
c) Discuss which plan you would choose.

9. Explain the significance of financing with accounts payable. Also, explain the rationale of taking a cash discount, such as 2/10, net/40. Additionally, determine the approximate balance of accounts payable, if a company stretches its payables to 60 days and on average, they make purchases of $200,000 per day from their vendors. Explain what the stretching accomplishes if the vendors should be paid in 40 days.

10. Go to Gurufocus.com and find the weighted average cost of capital for The Home Depot, Inc. (HD).
Required:
a) Explain how the WACC is calculated.
b) Explain the WACC in the context of a hurdle rate, an optimal capital structure, an optimal capital budget, and the golden rule of value creation.

The evaluation of the work, especially the qualitative questions de...