Three casses answer need to solve.
Case-1 Stock Valuation at Oxen, Inc. Oxen, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Oxen. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Oxen, Inc., has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave each 50,000 shares of stock. In the event either wished to sell stock, the shares first had to be offered to the other at a discounted price. Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have gathered the following information about their main competitors: Expert HVAC Corporation’s negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per share for the company would have been $1.06. Last year, Oxen, Inc., had an EPS of $4.54 and paid a dividend to Carrington and Genevieve of $63,000 each. The company also had a return on equity of 25 percent. The siblings believe that 20 percent is an appropriate required return for the company. Oxen, Inc. Competitors QUESTIONS 1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock? Q2. To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the company’s financial statements, as well as examining its competitors. Although Oxen, Inc., currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the company’s technological advantage will last only for the next fi ve years. After that period, the company’s growth will likely slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry average required return is more appropriate. Under this growth rate assumption, what is your estimate of the stock price? Q3. What is the industry average price–earnings ratio? What is the price–earnings ratio for Oxen, Inc.? Is this the relationship you would expect between the two ratios? Why? Case-2 Titlas Gold Mining Seth Titals, the owner of Titals Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for sixteen years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $200000 today, and it will have a cash outflow of 33000 in sixteen years from today in costs associated with closing the mine and reclaiming the area surrounding it. She has spend $100000 for testing the soil. The expected cash flows each year from the mine are shown in the table. Titals Mining has a 18 percent required return on all of its gold mines. year 0 -200000 Year 1 17000 year 2 18000 Year 3 17000 Year 4 17000 Year 5 23000 Year 6 17000 Year 7 17000 Year 8 17000 Year 9 17000 Year 10 350000 Year 11 350000 Year 12 350000 Year 13 350000 Year 14 28000 Year 15 25000 Year 16 33000 QUESTIONS 1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine. 2. Based on your analysis, should the company open the mine? 3. The company was given an option to receive consultancy fee 1000000 per year for sixteen years or to engage in gold mining. Do you think you should include this revenue while estimating the cost of investment? Discuss? Case-3 The Pasty company produced a full line of cakes, and its specialties included chess cake, lemon pound cake, and double iced, double-chocolate cake. The couple formed the company as an outside interest, and both continued to work at their current jobs. Doc did all the baking, and Say handled the marketing and distribution. With good product quality and a sound marketing plan, the company grew rapidly. In early 2018, the company was featured in a widely distributed entrepreneurial magazine. Later that year, the company was featured in Mary Desserts, a leading specialty food magazine. After the article appeared in Mary Desserts, sales exploded, and the company began receiving orders from all over the world. Because of the increased sales, Doc left his other job, followed shortly by Say. The company hired additional workers to meet demand. Unfortunately, the fast growth experienced by the company led to cash fl ow and capacity problems. The company is currently producing as many cakes as possible with the assets it owns, but demand for its cakes is still growing. Further, the company has been approached by a national supermarket chain with a proposal to put four of its cakes in all of the chain’s stores, and a national restaurant chain has contacted the company about selling McGee cakes in its restaurants. The restaurant would sell the cakes without a brand name. Doc and Say have operated the company as a sole proprietorship. They have approached you to help manage and direct the company’s growth. Specifically, they have asked you to answer the following questions. QUESTIONS 1. What are the advantages and disadvantages of changing the company organization from a sole proprietorship to an LLC? 2. What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation? 3. Ultimately, what action would you recommend the company undertake? Why? Case-1 Stock Valuation at Oxen, Inc. Oxen, Inc., was founded nine years ago by brother and sister Carrington and Genevieve Oxen. The company manufactures and installs commercial heating, ventilation, and cooling (HVAC) units. Oxen, Inc., has experienced rapid growth because of a proprietary technology that increases the energy efficiency of its units. The company is equally owned by Carrington and Genevieve. The original partnership agreement between the siblings gave each 50,000 shares of stock. In the event either wished to sell stock, the shares first had to be offered to the other at a discounted price. Although neither sibling wants to sell, they have decided they should value their holdings in the company. To get started, they have gathered the following information about their main competitors: Expert HVAC Corporation’s negative earnings per share were the result of an accounting write-off last year. Without the write-off, earnings per share for the company would have been $1.06. Last year, Oxen, Inc., had an EPS of $4.54 and paid a dividend to Carrington and Genevieve of $63,000 each. The company also had a return on equity of 25 percent. The siblings believe that 20 percent is an appropriate required return for the company. Oxen, Inc. Competitors QUESTIONS 1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock? Q2. To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the HVAC industry. Josh has examined the company’s financial statements, as well as examining its competitors. Although Oxen, Inc., currently has a technological advantage, his research indicates that other companies are investigating methods to improve efficiency. Given this, Josh believes that the company’s technological advantage will last only for the next fi ve years. After that period, the company’s growth will likely slow to the industry growth average. Additionally, Josh believes that the required return used by the company is too high. He believes the industry average required return is more appropriate. Under this growth rate assumption, what is your estimate of the stock price? Q3. What is the industry average price–earnings ratio? What is the price–earnings ratio for Oxen, Inc.? Is this the relationship you would expect between the two ratios? Why? Case-2 Titlas Gold Mining Seth Titals, the owner of Titals Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for sixteen years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $200000 today, and it will have a cash outflow of 33000 in sixteen years from today in costs associated with closing the mine and reclaiming the area surrounding it. She has spend $100000 for testing the soil. The expected cash flows each year from the mine are shown in the table. Titals Mining has a 18 percent required return on all of its gold mines. year 0 -200000