FIN550 SNHU Macroeconomic Items

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Question Description

For this milestone, submit a draft of the Macroeconomic Items section of the final project, along with your supporting explanations. Base your calculations on the data provided in 2017 UPS Annual Report Be sure to substantiate your claims.


Submit your calculations on the designated tab of the Final Project Student Workbook and your supporting explanations as a Microsoft Word document.

This milestone will be used in your final project. For additional details, please refer the Milestone Four Guildelines and Rubric document.

***Include References. See three attachments for additional details.***

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Milestone One: Time Value of Money (please fill in YELLOW cells) Interest Rate 8% FCF1 FCF2 FCF3 FCF4 Amounts* Pv* 0.00 Total Pv* *In millions 0.00 Pv=FVN/(1+I)^N $0.00 PV(I,N,0,FV) $0.00 $0.00 Explanations: FCF (Free Cash Flow) is the net change in cash generated by the o business during a reporting period, minus cash outlays for working expenditures, and dividends during the same period. This is a stro the ability of an entity to remain in business. FCF5 $0.00 Note: For this part of the Milestone, please capital lease payment property. Usually Free Cash Flows (FCFs) are used to calculate NPV Flow calculations will be covered later in the course and thus can’t the initial Milestone #1 analysis. Interest Rate (given) - in our scenario we will use 8% interest rate implicit rate, the average rate that lease consumer face on the cu net change in cash generated by the operations of a eriod, minus cash outlays for working capital, capital during the same period. This is a strong indicator of ain in business. estone, please capital lease payments under ows (FCFs) are used to calculate NPV. Free Cash red later in the course and thus can’t be used for sis. scenario we will use 8% interest rate. This rate is an e that lease consumer face on the current market. Milestone Two: Stock Valuation and Bond Issuance (please fill in the YELLOW cells) PART I: STOCK VALUATION Dividend from Financial Statements: Year (fill in Cash what year you Div/share ($) are using) Dividend Yield Stockholder's Stock Price Equity (in millions) 201# 201# 201# #DIV/0! #DIV/0! #DIV/0! 1. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75 Year (fill in Cash Dividend what year you Div/Share ($) Yield are using) +1.75 201# 1.75 #DIV/0! 201# 1.75 #DIV/0! 201# 1.75 #DIV/0! Stockholder's Stock Price Equity (in millions) 0 0 0 #DIV/0! #DIV/0! #DIV/0! 2. The dividend yield if the firm doubled it's outstanding shares Year (fill in Cash Dividend what year you Div/Share ($) Yield are using) 201# 0 #DIV/0! 201# 0 #DIV/0! 201# 0 #DIV/0! Stockholder's Stock Price Equity (in millions) doubled 0 #DIV/0! 0 #DIV/0! 0 #DIV/0! 3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above Year (fill in Cash Stock Price what year you Div/Share ($) are using) +1.75 201# 1.75 #DIV/0! 201# 1.75 #DIV/0! 201# 1.75 #DIV/0! Return on Investment CALCULATE ROI (Dividends + Capital gain)/ Divided b (D1 + (P1-P0)) / PO PART II: BOND ISSUANCE Current Bonds from Financial Statements Present Value Periods Interest Payments Future Value PV N I PMT FV ($2,963) 40 Semi-annual payment: 2036-2016 = 20 years *2 = 40 periods 2.9375 Interest paid semi-annually: 5.875%/2 = 2.9375% 0 This bond does not make regular PMTs, assume zero coupon b CALCULATING FV (please see help on the right hand side) 1. The new value of the bond if overall rates in the market increased by 5% Present Value Periods Interest Payments Future Value PV N I PMT FV ($2,963) 40 Please adjust interest 0 CALCULATING FV (please see help on the right hand side) 2. The new value of the bond if overall rates in the market decreased by 5% Present Value Periods Interest Payments Future Value PV N I PMT FV ($2,963) 40 Please adjust interest 0 CALCULATING FV (please see help on the right hand side) 3. The value of the bond if overall rates in the market stayed exactly the same - identical to CURRENT BOND VALUE from Financial Statements ells) Explanations: Cash Dividend - distribution of the corporate income. They are appear on Income Statement. Note: Part of Statement of Cash Flows. Please be aware that co Dividend Yield - annual cash dividend per share of common sto of a share of the common stock. (Dividend yield = Annual Divide Note: Current Stock Price is not part of the Financial Statement for Dividend Yield d per share by 1.75 d yield you calculated above ALCULATE ROI Dividends + Capital gain)/ Divided by the original Price 1 + (P1-P0)) / PO Stockholder's Equity = Assets - Liabilities. This represents the o Owners are called stockholder because they hold stocks or shar goal of every corporate manager is to generate shareholder val Return on Equity - for this part we will modify and use return o Using the formula: Dividend (+1.75)/+[(new price-old price)/old Note - for this part, you will need extra price from 2011 Bonds are a long-term debt for corporations. By buying a bond, to the corporation. The borrower promises to pay specified inte lifetime and at the maturity, payback the entire principle. In ca have priority over stockholders for any payment distributions. Bonds = Debt...............Bondholders = Lenders Stock=Equity................Stockholders = Owners Calculation: Please note that for bond calculations, only one bo that February 1st, 2015 is the origination date. The value on fin considered PV (Present value). Maturity date would be also ass payment schedule would be adjusted to February 1 and August available in 8-k 2006) 036-2016 = 20 years *2 = 40 periods lly: 5.875%/2 = 2.9375% e regular PMTs, assume zero coupon bonds see help on the right hand side) The following Senior-Note was used from page 44: 5.875% Senior Notes; due December 16, 2036; interest payable December 16 PV (Present Value) = 2,963 million Our scenario: 5.875% Senior Notes; due February 1, 2036; inter February 1 and August 1 PV (Present Value) = 2,963 million 5.875%+5% = 10.875%/2 = 5.4375% see help on the right hand side) 5.875%-5% = 0.875%/2 = 0.4375% FV (Future Value Calculation) - using Excel Formula Step 1) Select Formulas Step 2) Click on Financial Step 3) Select FV - you will see the formula below Step 4) Enter the following: Rate - enter as decimal, no % sign. Example: 4% as 0.04 Nper - number of period. Enter a whole number. Example 50 Pmt - payment. Our example does not assume regular payment Pv - Present value. Enter as negative. Example $1,000 should be Type - leave blank see help on the right hand side) Updated: 01/22/2018 by ZB of the corporate income. They are not expenses and do not . sh Flows. Please be aware that corporation list 5 years worth of dividend per share of common stock divided by the market price ck. (Dividend yield = Annual Dividend/Current Stock Price) ot part of the Financial Statements - calculated suing the formula - Liabilities. This represents the ownership of a corporations. r because they hold stocks or share of the company. The main ger is to generate shareholder value. rt we will modify and use return on investment instead. +1.75)/+[(new price-old price)/old price] eed extra price from 2011 or corporations. By buying a bond, the bond-owner lends money wer promises to pay specified interest rate during the loans payback the entire principle. In case of bankruptcy, bondholders rs for any payment distributions. olders = Lenders olders = Owners for bond calculations, only one bond was used and we assume origination date. The value on financial statements will be ). Maturity date would be also assumed for February 2036 and adjusted to February 1 and August 1. (issued in 2006 and details as used from page 44: cember 16, 2036; interest payable semi-annually on June 16 and llion Notes; due February 1, 2036; interest payable semi-annually on llion - using Excel Formula e the formula below sign. Example: 4% as 0.04 er a whole number. Example 50 does not assume regular payments. Assume zero coupon bond for our example. egative. Example $1,000 should be -1000 Milestone Three: Capital Budgeting Data (please fill in YELLOW cells) Initial Outlay Cash Flows (Sales) - Operating Costs (excluding Depreciation) - Depreciation Rate of 20% Operating Income (EBIT) - Income Tax (Rate 35%) After-Tax EBIT + Depreciation Cash Flows CF1 - $0 NPV IRR $0.00 #NUM! WACC CF2 CF3 Select from drop down: ACCEPT ACCEPT CF4 - CF5 - - Capital Budgeting Example Set-up ACCEPT Initial investment $65,000,000 REJECT Straight-line Depreciation of 20% Income Tax @35% WACC of 8% approximately. (HD WACC was about 8.83%) Cash Flow (which in this case are Sales Revenues) are as follows: CF1: $50,000,000 CF2: $45,000,000 CF3: $65,500,000 CF4: $55,000,00 CF5: $25,000,000 Operating Costs CF1: $25,500,000 CF2: $25,500,000 CF3: $25,500,000 CF4: $25,500,000 CF5: $25,500,000 WACC- why do we use WACC rate for new projects? If the project doesn’t earn more percent than WACC, the corporation should abandon the project and invest money elsewhere. Initial Investment - always negative. Corporation has to invest money ("lose" it till they recover it via sales) in order to gain future benefit. Milestone Four: Interest Rate Implication (please fill in YELLOW cells) 1. Original Scenario from Milestone 1 - Time Value of Money using 8% Interest Rate 8.00% FCF1 FCF2 FCF3 FCF4 Amounts* Pv* 0.00 Total Pv* *In millions 0.00 0.00 0.00 0.00 2. Change in interest rate and its implications - Lower Interest Rate (5%) Interest Rate FCF1 FCF2 FCF3 FCF4 Amounts* Pv* 0.00 Total Pv* *In millions 0.00 0.00 0.00 0.00 3. Change in interest rate and its implications - Higher Interest Rate (15%) Interest Rate FCF1 FCF2 FCF3 FCF4 Amounts* Pv* 0.00 Total Pv* *In millions 0.00 0.00 0.00 0.00 Explanation: We will use Milestone 1 and Time Value of Money for Milestone 4 a Two cases will be analyzed: Lower Interest Rate at 5% Higher Interest Rate at 15% FCF5 0.00 FCF5 0.00 FCF5 0.00 Money for Milestone 4 analysis FIN 550 Milestone Four Guidelines and Rubric Overview: For the final project, you will use 2017 UPS Annual Report to prepare a financial analysis report for UPS. You will include in your analysis the background calculations and managerial analysis for each of the following topics: time value of money, stock and bond valuation, and capital budgeting. You will also discuss macroeconomic variables that might impact the company’s financial decision making and strategic objectives. These topics will be covered over four milestones to be submitted throughout the course before you submit the final project. Note that while these elements may seem separate and unrelated, together they will present a well-rounded view of the company’s finances with regard to the topics. In Milestone Four, you will submit a draft of the Macroeconomic Items section of the final project, along with your supporting explanations. Prompt: Provide an explanation of the impact of external factors on the financial position of UPS. Use the designated tab in the Final Project Student Workbook to demonstrate the implications of interest rate changes on at least one of the calculations you performed in one of the earlier milestones. Specifically, the following critical elements must be addressed: V. Macroeconomic Items: The CEO of the company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince him otherwise based on the following: A. Analyze the implications of interest rate changes on any of the calculations you performed. Be sure to substantiate your claims. B. How might an issue (negative or positive) within the overall stock market impact the company’s stock valuation numbers, other financial variables, or its overall portfolio management? Be sure your response is supported by evidence. C. Analyze the impact of any external factor (i.e., external to the company) discussed throughout the course on the company’s financial position. Be sure to justify your reasoning. Guidelines for Submission: Your paper must be submitted as a 2- to 3-page Microsoft Word document, not including your calculations, which should be completed in the Final Project Student Workbook. Use double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to APA style. Rubric Critical Elements Macroeconomic Items: Implications of Changes Proficient (100%) Analyzes implications of interest rate changes, substantiating claims Needs Improvement (80%) Analyzes implications of interest rate changes, but response or substantiation is cursory or illogical Macroeconomic Items: Stock Assesses the impact of an issue within Assesses the impact of an issue within Market the overall stock market on the the overall stock market on the company’s stock valuation numbers or company’s stock valuation numbers or any other financial variable, supporting any other financial variable, but response response with evidence is cursory, illogical, or weakly supported Macroeconomic Items: Analyzes the impact of a factor external Analyzes the impact of a factor external External Factor to the company on the company’s to the company on the company’s financial position, justifying reasoning financial position, but response is cursory, illogical, or weakly supported Articulation of Response Submission has no major errors related Submission has major errors related to to citations, grammar, spelling, syntax, or citations, grammar, spelling, syntax, or organization organization that negatively impact readability and articulation of main ideas Not Evident (0%) Does not analyze implications of interest rate changes Value 30 Does not assess the impact of an issue within the overall stock market on the company’s stock valuation numbers or any other financial variable 30 Does not analyze the impact of a factor external to the company on the company’s financial position 30 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total 10 100% 2017 UPS Annual Report 2017 UPS Annual Report Transforming UPS... for Today and Tomorrow 55 Glenlake Parkway, NE, Atlanta, GA 30328-3474 www.ups.com © 2018 United Parcel Service of America, Inc. UPS, the UPS brandmark and the color brown are trademarks of United Parcel Service of America, Inc. All rights reserved. 180069_L01_CVRS.indd 1 2/28/18 8:51 PM INVE STOR INFOR MATION YEAR FOUNDED 1907 KEY METRICS 27,850 UPS ACCESS POINT LOCATIONS 10.5 MILLION CUSTOMERS 2017 2016 2015 Return on assets (adj.) 12.1% 12.8% 13.3% Return on assets (GAAP) 11.4% 8.7% 13.1% Return on invested capital (adj.)* 26.8% 32.5% 32.4% Return on invested capital (GAAP) 30.3% 27.4% 39.2% 2.6% 2.7% 3.0% * Dividend yield FINANCIAL HIGHLIGHTS 2017 2016 2015 $65,872 $60,906 $58,363 58,343 55,439 50,695 Net income 4,910 3,431 4,844 Adjusted net income* 5,259 5,104 4,923 Diluted earnings per share 5.61 3.87 5.35 Adjusted diluted earnings per share* 6.01 5.75 5.43 Dividends declared per share 3.32 3.12 2.92 Revenue Operating expenses Assets 45,403 40,377 38,311 Long-term debt 20,278 12,394 11,316 Shareowners’ equity 1,030 429 2,491 Capital expenditures 5,227 2,965 2,379 Cash and marketable securities 4,069 4,567 4,726 (in millions except for per-share amounts) 5.1 BILLION 454,000 9,100 ALTERNATIVE FUEL VEHICLES UPS MY CHOICE MEMBERS Computershare Send notices of address changes or questions regarding account status, stock transfer, lost certificates, or dividend payments to: FREE CASH FLOW Proceeds from disposals of PP&E 2017 2016 2015 $1,479 $6,473 $7,430 (5,227) (2,965) (2,379) 24 88 26 Net change in finance receivables 5 9 5 Other investing activities 1 (59) (30) (3,718) 3,546 5,052 7,291 2,461 1,030 $3,573 $6,007 $6,082 Discretionary Pension Contributions Adjusted free cash f low (in millions of dollars) MORE THAN ® TRANSFER AGENT AND REGISTRAR IN DELIVERY FLEET Capital expenditures 2,242 DAILY 143 MILLION DAILY ONLINE TRACKING FLIGHT SEGMENTS UPS 55 Glenlake Parkway, NE Atlanta, GA 30328-3474 800.877.1503 or 404.828.6059 investors.ups.com Our Class B common stock is listed on the New York Stock Exchange under the symbol “UPS”. 119,000 VEHICLES Net cash from operations INVESTOR RELATIONS You can contact our Investor Relations Department at: EXCHANGE LISTING WORLDWIDE OPERATING FACILITIES EMPLOYEES Free cash f low 2017 DELIVERY VOLUME 43 MILLION 2,500 ANNUAL MEETING Our annual meeting of shareowners will be held at 8 a.m. on May 10, 2018, at the Hotel Du Pont, 11th and Market Street, Wilmington, DE. Shareowners of record as of March 12, 2018, are entitled to vote at the meeting. Regular Mail: UPS c/o Computershare PO Box 505002 Louisville, KY 40233-5002 or: Expedited Delivery: UPS c/o Computershare 462 South 4th Street, Suite 1600 Louisville, KY 40202 FORM 10-K Our Annual Report on Form 10-K for the year ended December 31, 2017, forms part of the UPS 2017 Annual Report. If you would like an additional copy of our Form 10-K, you can access it through the Investor Relations website at www.investors.ups.com or at the Securities and Exchange Commission website, sec.gov. The Form 10-K also is available free of charge by calling, contacting via the website, or writing to the Investor Relations Department. UPS SHAREOWNER SERVICES Convenient access 24 hours a day, seven days a week. Class A Common Shareowners www.computershare.com/ups 888.663.8325 Class B Common Shareowners www.computershare.com/ups 800.758.4674 Calls from outside the United States: 201.680.6612 TDD for hearing impaired: 800.231.5469 TDD for non-U.S. shareowners: 201.680.6610 DIRECT STOCK PURCHASE PLAN To make an initial purchase of UPS Class B Common Stock online, visit www.computershare.com/Investor and go to “Buy stock direct-search and enroll in available plans”. Follow the instructions provided to search for Investment Plans and access the Enrollment Wizard. Current Class B shareowners can enroll in the plan online by accessing their accounts through www.computershare.com/ups or by calling 800.758.4674. DIVIDEND REINVESTMENT PLAN To reinvest dividends in the purchase of additional UPS shares: Class A and B Shareowners www.computershare.com/ups ONLINE ACCESS TO SHAREOWNER ACCOUNT MATERIALS Enroll in E-Communications, a self-service program that provides electronic notification and secure access to shareowner communications. To enroll, access your account at www.computershare.com/ups. After accessing your account select the “View Account” link to manage your holdings. Then click on “My Profile,” select “Update” under “Communications” and follow the enrollment instructions. UPS WEBSITES Investor Relations - - - - - - - - - - - - - - - investors.ups.com UPS Corporate - - - - - - - - - - - - - - - - - - - - - - - - - ups.com Sustainability/ Corporate Responsibility - - - - - sustainability.ups.com Services and Solutions - - - ups.com/businesssolutions *See reconciliation of Non-GAAP financial measures on page A1. 180069_L01_CVRS.indd 2 3/5/18 5:32 PM Dear Fellow Shareowner, From our humble roots as a bicycle intelligence, machine learning, blockchain, messenger service, UPS has a long and robotics, and many other cutting-edge proud legacy of innovation. Today, we technologies to future-proof our network. live in an era of great technological While these investments represent a changes that are redrawing the terms of major financial commitment in the engagement for companies across the near term, the benefits to our customers globe. So while UPS achieved all-time and shareowners over the long run will highs in both earnings per share* and be substantial. By implementing new revenues last year, our ambitions are even technology and expanding capacity in our greater. Our founder Jim Casey famously facilities, we are making the industry’s said that “our horizon is as distant as our most-efficient network even more mind’s eye wishes it to be,” and in that effective. Our digital investments give same spirit, late in 2017, we embarked on a us – and our customers – more flexibility, major transformation initiative to ensure consistency and vi ...
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Tutor Answer

Philal
School: Rice University

Kindly receive your work in advance and feel free for edits if need be.... i hope you will respond as soon as possible so that i can have that opportunity to elaborate all i did

Milestone One: Time Value of Money (please fill in YELLOW cells)
Interest Rate

8%
FCF1

Amounts*
Pv*

Total Pv*
*In millions

FCF2

FCF3

$7,529

$5,467

$7,668

6971.30

$4,687.07

$6,087.11

26184.32

Pv=FVN/(1+I)^N

PV(I,N,0,FV)

Explanations:

FCF4

FCF5
$4,968

$7,034

$3,651.63

$4,787.22

FCF (Free Cash Flow) is the net change in cash g
business during a reporting period, minus cash o
expenditures, and dividends during the same pe
the ability of an entity to remain in business.

Note: For this part of the Milestone, please capit
property. Usually Free Cash Flows (FCFs) are use
Flow calculations will be covered later in the cou
the initial Milestone #1 analysis.

Interest Rate (given) - in our scenario we will us
implicit rate, the average rate that lease consum

Flow) is the net change in cash generated by the operations of a
a reporting period, minus cash outlays for working capital, capital
nd dividends during the same period. This is a strong indicator of
entity to remain in business.

art of the Milestone, please capital lease payments under
ly Free Cash Flows (FCFs) are used to calculate NPV. Free Cash
ns will be covered later in the course and thus can’t be used for
tone #1 analysis.

iven) - in our scenario we will use 8% interest rate. This rate is an
e average rate that lease consumer face on the current market.

Milestone Two: Stock Valuation and Bond Issuance (please fill in the YELLOW cells)
PART I: STOCK VALUATION
Dividend from Financial Statements:
Year (fill in
Cash
what year you Div/share ($)
are using)
2017
2016
2015

3.32
3.12
2.92

Dividend
Yield

Stockholder's
Stock Price
Equity (in millions)

0.59%
0.80%
0.54%

1,030 563.954476
429
390
2,491 540.740741

1. Stock Valuation - The new dividend yield if the company increased its dividend per share by 1.75
Year (fill in
Cash
Dividend
Stockholder's
Stock Price
what year you Div/Share ($) Yield
Equity (in millions)
are using)
+1.75
2017
5.07
0.90%
1,030 563.954476
2016
4.87
1.25%
429
390
2015
4.67
0.86%
2,491 540.740741
2. The dividend yield if the firm doubled it's outstanding shares
Year (fill in
Cash
Dividend
Stockholder's
Stock Price
what year you Div/Share ($) Yield
Equity (in millions) are using)
doubled
2017
1.66
0.29%
2,060 563.954476
2016
1.56
0.40%
858
390
2015
1.46
0.27%
4,982 540.740741

3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above
Year (fill in
Cash
Stock Price Return on
what year you Div/Share ($)
Investment
are using)
+1.75
2017
5.07 563.954476
2016
4.87
390
2015
4.67 540.740741

CALCULATE ROI
1.01% (Dividends + Capital gain)/ Divided
1.01% (D1 + (P1-P0)) / PO

PART II: BOND ISSUANCE
Current Bonds from Financial Statements
Present Value
Periods
Interest
Payments
Future Value

PV
N
I
PMT
FV

($2,963)
40
2.9375
0
$122,001.53

Semi-annual payment: 2036-2016 = 20 years *2 = 40 periods
Interest paid semi-annually: 5.875%/2 = 2.9375%
This bond does not make regular PMTs, assume zero coupon
CALCULATING FV (please see help on the right hand side)

1. The new value of the bond if overall rates in the market increased by 5%
Present Value
Peri...

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