Finance Case Writing

Anonymous
timer Asked: Mar 23rd, 2017

Question Description

Hi

I need people to write a case for my finance class, it is gonna be Johnson Window company capital structure , instructor requested that we needed to have a presentation about 10 minutes with a visual aid, along with a case submitted.

Please write a case no less than 10 pages, not including title page, reference page and abstract. There are 10 questions at the end of the case, make sure to consider the answer of the questions (do not directly quote the question, but talk About the answer while writing), and analysis of this case.

Beside this, we still need a PPT as visual aid in the presentation, the PPT is about 10 pages. No similar work accepted, IT MUST BE A UNIQUE WORK FROM YOU. thanks.

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Thus, Gibbs concluded that she should create a business plan that not only described thc product, the rnarkcts to be served, and the firm's production plans, but which also outlined the anticipated financing requirements in some detail. The initial marketing plan called fbr selling thc tinted windows directly to large contractors and usin-9 sevcral wholesalers to distribute the items to architects and small contractors. At a pro.jected average selling price of $750 per unit, they had little doubt that sales would be strong. Howcver, thc tintcd windows will be used prirnarily in new construction, and this industry has always been subject to highly cyclical sales. Further, although the sunbelt region is continuing to L'xperience relatively strong commercial and residential markets, other sunbelt areas such as Houston have been sufl'ering liom high commercial vacancy rates and depressed residential markets. Thus. Gibbs t'elt uncomlitrtable about using a point cstimate tbr unit sales. st'r she developed estimates firr threc possible scenarios: rlost likely, optirnistic, and pessimistic, with probabilities ol occurrence of 0.50, 0.25, and 0.25, respectively. Of course, Cibbs realizes that unit sales could assume almost any value. but I'rer discrete distribution is roughly cornparable to a continuons norrnal distribution which has a range of plus or n.rinus 2 standard deviations abttut the mean: Probability Unit Sales Pessimistic 0.25 52,200 Most likely Optimistic 050 025 67,500 82,800 Scenario Dollar Sales $39,150,000 50,625,000 62,100,000 After an in-depth study, Phillips, the engineer-production manager, identified two alternative production processes that could be employed, and he asked Gibbs to evaluate the financial irnplications of the alternatives and to recornnrend a course of action. Plan A involves only a sn.rall amount of automated equiprnent, as most of the window cornponents would bc purchased ticlm local subcontractors. Under this plan, annual fixcd costs are estimated to be $7,769,900. while variable costs would be $585 per unit produced. The second alternative. Plan B, would recluire the firm to make a significant investment in fabrication machinery, resulting in a fixed cost estintate ol'$17,845,000 per year and variable costs clf $4 l5 per unit. Neither l'ixed cost estimate includes interest expense, since thc capitalization mix is still uncertain. The company plans to set the initial sales price at $750 per unit regardless of which production process is chosen. Total capital requirernents lbr both current and fixed assets. as well as start-up operating tunds, are estimated to be $14.0 million under Plan A and $20.0 million under Plan B. To help with the capitalization decision. Gibbs had extensive meetings with investment bankers, venture capitalists, cornmercial bankers, insurance exccutives. and mutual-l'und managers. On the basis of these rreetings, shc constructed the following estimates lbr the relationship between financial leverage and capital costs: Amount Borrowed S O million 4 million 8 nlilllon 12 1nillion 16 milllon Cost of Debt 00Sを H.0 120 140 170 @ 1994 South-Western, a part of Cengage Learning 70 Cost of Equity 140% 150 17.0 200 24.0 6uru:ee1 e6e6ua3 1o ued e 'urelsoM-Ulnog 7551 レZ a lueurlsa^ul eql',{llueplcul 'suo4rpuot lo{rerr lreuer 01 ecrJd leIJEru eql ol sluel,ulsnlpB luenbesqns aleur {eql ueql 'ecud aruqs pue soJuqs Jo Jequnu ..uorlurrrrxoJddu lsrg,, B eletu -Ilse ol osn.(ll?crd,q sJe{uBq luerulse^ur euo oql sr esBc eql ur JoJ pelleJ eJnpecord eql'eJnp -a3ord roqlle Jepun eIrrBS eql aq Ur1t\ onlp^ - seJuqs x ecrJd lcnpoJd eql sB 'ornpoJoJd Jaqlre Jepun lBcrluepl eq III^\ srolso^ur eqt ot qllBe,r pelelncpc eql 'srepunoJ oqt JoJ Sururuurer pu? sJOpISlno 01 penssl saftI{s eql leE ol scud uruJqrlrnba srql Iq ,(1rnbe eprslno peJrnbeJ eql epl^Ip uew pue 'ereqs red eclJd runlrqrlrnbe eql 13E ol seJEqs (q,$rnbe epr^rp 'enssr 01 soJuqs Jo Jequrnu euros [Jrcads ',(trnbe eqlJo enp^ oql puu ol eq plno^\ alnpecoJd e^rleu -relle uv 'seJBqs Sururuuer eql qlr^\ srepunoJ eql e^Bel ueql puB 'srolso^ur eprslno 01 seJuqs Jo Jequnu perrnbor oql uErssB '8urpue1s1no oq IIy( l8r{1 seJBqs Jo reqrunu eql ouruuotop o1 eruqs rad ecud peuroeds eq1 ,(q eprzrrp ',firnbe er{l Jo enls^ eql oleurlse IIy!\ sqqlD luql eloN lsoc - s{ pue p1 ',(1rnba;o enp^ la{JBr.u = S 'lgep Jo enlB^ la{Juru lqep yo lsoc = ',(1mbe go - C ,eJeH trl (J:t)(cBr-Jtfla) ?c= S+ C=A :s,rolloJ sB JIgg pelcedxe go srseq eql uo peterurlsa eq uec 'A 'tuJU eql Jo enp^ eql os .s/(og qsuc pnlod.red peurnssu osp sqqrD (7) '>1co1s rrorl JoJ Suqlou pred srepuno; eqt rcql petunsse sqqrg',(trcldrurs ro;'acuaq iperou8r eq ueo uorlnqrluoc .sJepunog eql 'ecud enssr eql Jo qDSI/I sr srapunoJ eqt ,(q pmd eruqs red 0l'0$ eql ecurg (1) :suoudrunssu o,tu eputu seq sqqlg 'srs,(pue eqt ,(grldrurs o1 'acud e"tuqs .red 0I$ eW ,(ed ol srolse,rur eprslno ecnpur IIns puB se^lesueqt o1 enssr uB3 srepunoJ eql 1Bql seJBqs Jo roqrunu aql puu 01 seq sqqrD .0Ig te tes eq ot sr ecud {oots eqt ecurs 'srepunoJ s.uuu eqt ,{q pleq {Jots erlJo enlu^ eql ezru -rxeru IIr^\ qcrqa eJnlcnls yelrdec 1eql esooqc o1 sr poE s.sqqlD ,le,te,trog .plrdec;o uorllru g'g7g permbeJ eql esruJ 01 eJuqs red 6yg tB plos eq uec sereqs uorllrtu 0'Z ,pesn sr tqep ou JI lBql polsclpul sJe{uug luetulse^ul s(uosuqof 'g uBId uo pesBq orE esBc eql ur uerr.r8 lelrdec Jo slsoc luauoduoc puu e8ure,tal IBIcuEug uee^Ueq sdrqsuorluler eql Jo sel€urlse eql leql pue 'uorllru 0'02$ sl uuld srqt lraJJe 01 /hopurlA uosuqol ,(q perrnber plrdec IElol 3r{l 1Br{1 ,g ol oputu sI uorsrcop eql lBql etunssB '1 uoqsen| ur uorsnlcuoc rno,( go sselpru8eg ・z ue14 tdope 0のも ①﹂一 ロ スcOQE o0 3oO三≧′co∽cco﹁” 0﹄豊五 g〓0 ('eprn8 u sB I elqeJ esll 'uorsrcep uorlcnpord eql qlr^\ pe^lo^ur senssr oql lnoqu ,(po {ulql uorlsenb srqt ro3 lnq 'suorsrcep Eurcueug pue uorlcnpord qloq so^lo^ul lBql uorsrcep lurol e sr uorsrcop pug eql lBql eloN 'qcee Jo ssaur -)sIJ eqt ssesse ueql pue sueyd qloq Japun [lueurlserrur uo u.rn1e.r] IOU pu€ 11gg petcedxe eqt pue lurod ue^e{BaJq erp etBInclBJ :1urg) 6pueuuocor sqqrg ppoqs ueld uorlcnpord qcrq11 .I SNOl■ Sヨ nO 're^\suB ol 'luBlsrssB req 'no,{ o1 pessud eqs qcrq,ry\ 'suoqsanb;o 1es Surmolyo; eql parederd sBq sqqro 'uolslcep eql qllt\ dlaq o1 'xrru Surcueug pue poqlou uorlcnpord eql roJ suouepuetutuocer dolezrep tsnru A\ou sqqrg 'purur ur srql IIB r{lll11 'Jelsusrp B eq ol eaord plnoc fl u?ld r{l!^\ EuroE ,suoltel -cedxe moleq ,(u,n sr puuuep Jr 'esrnoc JO 'uorlqeduoc puu ,fu1ue Iurluelod JJo pueq lqEru slrlJ 'g ueld qllit\ seo8 lt pueuop slqt teaIII o1 ,(lprder e^ou plnoc ,(uuduroc eql Eo se1e1 ,(11ee.r le{JBru JI g uuld repun reqEq qonru oq plnom 1nd1no Ierluelod Ietot arlJ eql JI 'snql 'v uEId Jopun ueqt O F”﹁ 0﹃ 0 ”﹂〇すコ∽〇⊃ く≦ ⊃QO〓 〇 〇 ヨ ooコく¨∪ マ①O”①Q , bankers invariably put on a "road show" where they, along with company executives, travel around lhe country and meet with institutional investors and security analysts to pre-sell the stock and gct an idea of the interest in the company. The final price is adjusted to re{lect investor reactions. with this background, answer the fbllowing questions: a. If the firm's tax rate, T, is estimated at 40 percent, what amount ol' financial leverage would maximize the value ctf the firm'l b. How many shares will the tbunders receive? What is the value of their shares'l c. Calculate Johnson Window's weighted average cosr ol'capiral (WACC) at each debt levcl. What is the relationship between Johnson's value and its WACC ? d. Suppose an investor purchased shares at $ I 0. learneri that the fbunders had bought their shares tor onty $0.10, and then f'elt cheated and threatened to sue the cornpany and its lbunders. Would this person have a good case'l Should the SEC protect investors liom this kind of thing'/ Gibbs is well aware of the t'act that the average manutacturing company has a tinres-interestearned (TIE) ratio of about 6. Using TIE as a risk measure, together with your answer to Question 2, how risky does the company appear to be? 4. Supptrse Johnson is planning to raise debt by issuing a2}-year term loan. What would be the annual payment, including both interest and principal amortization'l Use this intbrrnation to calculate Jclhnson's expected first-year debt service coverage ratio, clefined here as EBIT/(Interest expense + Befbre-tax principal repayment). If the average manutacturing firm has a coverage ratio of about 4. what does this indicate about Johnson's riskiness? 5. Suppose this were your company. Would your choice of debt level be inlluenced by your other asset holdingsT That is, would it matter whether your entire net worth was invested in the company as opposed to the situation where you owned rnillions of dollars ol'stocks in other cornpanies in addition to your holdings in Johnson Window,l 6. The entire analysis depends on (a) Gibbs's estimates ol'the costs of debt and equity at diffbrent capital structures, and (b) the validity of the ecluation given in 2. a. How confident are you in Gibbs's sstimates mates af'fbct the capital structure decision l euestion olku and k.? Could changes in these esti- b. What assulnptions underlie the equity valuation equation? Is it likcly that Johnson meets these assumptions? A theory has been expressed in the finance literature that "intbrmation asymrnetries" cause investors to interpret the sale of stock by a company as a "signal" that things nlay gct worse in the future, whereas the use of debt is taken as a positive signal. In general, what implicatitlns does this have lbr capital structure policy? Does it matter il'the flrrn in cluestion is a mature company or a start-up firm? Would it matter if the lounders planne

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