Running head MILESTONE 3 .docx

Running head: MILESTONE 3
1
MILESTONE 3
4
Robert Shulzinsky
Southern New Hampshure University
6 January 2018
Capital Budgeting Data
Net Present Value (NPV) of the Project
Net Present Value for the project for the five years will be
given by the NPV value for the cash flows as shown by the
capital budgeting sheet for milestone 3 minus the initial outlay.
NPV of the project = (CF1+CF2+CF3+CF4+CF5) – Initial
outlay
= ($21,453,688.38)
Internal Rate of Return (IRR) of the Project
Internal rate of return (IRR) represents the interest rate at which
the net present value of all the cash flows of a project will
break even or will be equal to just zero value. From the
calculations on the capital budgeting sheet of the milestone 3,
the IRR of the project is 34% meaning that the company’s
investments will need to grow at a rate of 34% to equal the
initial outlay, which is way much higher than the interest rate in
the market.

Implications of the Calculations
One of the implications of the calculations of the net present
value calculations of the project is that it reduces that amount
of cash flows for the project. Net present value calculations
discount the amount of funds that will be received in future
using the interest rate of the company. In this context, the
amount is discounted because of the effect of time on the money
received b a company. Another aspect of the net present value is
that it enables the management of the company anticipate what
the company will receive in future and take into account the
inflows and outflows when making decisions (Peterson &
Fabozzi, 2014).
On the other hand, internal rate of return provide a metric in
capital budgeting for measurement of the profitability of a
project with the given investments. The 34% internal rate of
return mean that the company will require to grow its
investments or the compound the investments by 34% in order
to enable the company make the investment. A high internal rate
of return is desirable when the company want to undertake the
project. I would recommend the company to reject the project
since it provides a negative net present value meaning that it
will not be able to repay the initial outlay of funds in the
company. In this context, the company will only be able to
make cash flows, which are positive but not able to recover its
outlay. Regardless of the fact that the IRR of the company is
high, which is good for any investment, the net present value
does not do any good to the project (Peterson & Fabozzi, 2014).
Difference between NPV and IRR
Net present value uses the market interest rate to discount
the cash flows of the company showing the real money value
that will be received by the company over time. The company
uses the net present value to evaluate the project because the
amount received today may be worth more in future or the value
that is anticipated to be received in future is worth much less at
the present time. On the other hand, internal rate of return is the
rate at which the net present values of the company will be just

equal to zero. To assess the project, it is important to use the
internal rate of return of the company because it shows the real
rate of growth of the investments regardless of the amount of
future cash flows.
References
Peterson, P., & Fabozzi, F. (2014). Capital Budgeting: Theory
and Practice. Hoboken, NJ: John Wiley & Sons.
FIN 550 Homework Guidelines and Rubric
This course uses homework problems to demonstrate
competence and allow for practice with calculations unique to
finance. Complete all your calculations in
the Homework Student Workbook. Then summarize your
findings and discuss the implications of the findings for the
business or potential business transaction.
Follow the instructions for each question in Modules Three and
Five and complete the assigned work.
Guidelines for Submission: Each homework assignment must be
submitted as a 1-page Microsoft Word document with double
spacing, 12-point Times New
Roman font, and one-inch margins. Any sources should be cited
according to APA style. In addition, your Homework Student
Workbook must be submitted to
demonstrate all calculations.
Critical Elements Proficient (100%) Needs Improvement (70%)
Not Evident (0%) Value

Accuracy of
Calculations
Includes detailed calculations, including
demonstration of each step taken to
accurately complete the problem
Includes calculations that are inaccurate
and/or does not include all of the steps
needed
Includes calculations that are inaccurate
and does not provide an explanation of
calculations
45
Analysis: Implications Includes an explanation of the
implications of the findings for the
business and/or potential business
transaction
Explains the implications of the findings,
but there are inaccuracies or explanation
is insufficient
Does not include an explanation of the
findings
45
Articulation of
Response
Submission has no major errors related to
citations, grammar, spelling, syntax, or

organization
Submission has major errors related to
organization that negatively impact
readability and articulation of main ideas
Submission has critical errors related to
organization that prevent understanding
of ideas
10
Earned Total 100%
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media.snhu.edu/files/course_repository/graduate/fin/fin550/fin5
50_homework_student_workbook.xlsx
[Type text] [Type text] [Type text]
1
Case Study: Stock Valuation and Bond Issuance
Robert Shulzinsky
Southern New Hampshire University
December 16, 2017

The worked stock valuation
A. From the figures provided compute;
1. The new dividend yield if the company increased its dividend
per share by 1.75
Dividends yield is given by the formula =
The above formula or equation based on the dividend yield is
normally used for calculation of the percentage return on stock
in respect to dividends accrued over the period. Generally, the
total return on a stock is termed as the accrued overall
dividends and appreciation of a stock in the specifications.
Moreover, dividends paid for a company is found on the
statement on retained earnings, hence is used to compute
dividends per share.
Dividends Yield Formula
The formula is used by investors who opt to focus on
increasing or declining rate of the dividend yield. On wide
angle, an organization or a firm that is spending less in
dividends in regard to its price probably having problems or
retaining most of a percentage on net income for its
development. When inspecting stock, it is good to consider the
whole company and its net income being retained since
reinvesting on net income would lead to appreciation of the
stock value and the general growth.

This formula is of greater interest on investors who
depends mainly on dividends from their normal savings and
investment. Furthermore, lower yield on dividends does not
mean little dividends since the price may substantially be
increased. As illustrated before, a sequence of declining yield
on dividends may only warrant inspection but not immediate
decline of the proposed investment.
The dividend Yield is calculated as= =
2. The dividend yield if the firm doubled its outstanding shares
The dividend on stock and corresponding stock split
generally increase the number of outstanding shares while
others remains constant, the price of stock decreases. Hence, the
price of the stock dilutes further on stock dividend /stock split.
Furthermore, stock split comprises of a decision by the
organization or firm board of directors aimed at increasing the
shares that may be outstanding facilitated by giving more shares
to the general shareholders’. in a 2-for-1 stock split,
each shareholder owning a stock is given an extra share. For
example, if a firm had 10m shares pending before split, it tends
to be holding 20m outstanding shares after (2-for-1 split).
The price of stock is influenced directly by a stock split.
Immediately after split, the price of stock is reduced since the
actual number of outstanding shares goes higher. In the above
2-for-1 split example the actual price would be halved. Hence,
despite the change on the outstanding shares and stock number,
market capitalization pertains i.e. never change.
When or if the company doubled its outstanding shares,
the price of stock will thus be halved, which will be $39.47.
Now dividend Yield will be= =
3. The rate of return on equity (i.e., the cost of stock) based on
the new dividend yield you calculated above

The return on equity ratio or ROE is an interest or profit
ratio that evaluates the ability of a company to increase profit
returns from shareholders investments within the firm. On
another case, the return on equity ratio reflects total profit on
each dollar on individual stockholders' equity earned or
generated.
Generally, return on 1 implies that each dollar of normal
stockholders' equity earns 1 dollar on the total net income. It is
an important measure for investors since they opt to see how
effective a fill would use their cash capital to increase net
income generation. It is also an indicator on the effective
management it employs the use of equity financing policy and
terms to finance operations to enhance company growth.
Return on equity ratio = = .
B. What effect would you expect each of the calculations you
performed to have in terms of shareholder value? In other
words, suppose the company’s goal is to maximize shareholder
value. How will each of the situations support or inhibit that
goal? Be sure to justify your reasoning.
Dividends influences the price in stock on the following
discussed three major ways. Basically, when a certain dividend
is paid for, the accrued value is subtracted from the specific
firm’s or organization retained earnings. These earnings are
termed as the total profit accrued or received by a company
after accumulating consecutively over time which has not been
placed to other alternative uses. In simple words, the total
amount of money a firm has in account which can be used to
pay dividends and fund companies projects.
When big firms and companies tend to display dividend
histories, they seem more effective and efficient for investors.
Thus, many investors come in to utilize the advantage the
benefit of stock ownership, definitely the price of stock
naturally shift upwards, hence increasing the belief that the
stock is firm in the market. In case a company releases a higher-

than-normal dividend, general public tends to break in and soar.
However, when a firm that analogically pay dividend
issues a lower-than-normal dividend, it may end up to be
perceived as a sign of failure or collapse on the company during
hard times. Honestly it could be, the company's profits
generated are being misused or used for other un necessary
purposes, but in real market's reflection on the situation is
always stronger and influential than the reality. For such
companies, they work hard to pay consecutive dividends for the
sake of avoiding spooking business investors who feel the
investment as darkly, scamming and foreboding.Dividend
Declaration and Distribution
When a dividend is to be distributed, issuing firm first
declare the amount in it plus the date it will be paid. Further,
announces the last date where the free shares can be bought to
receive dividend, namely the ex-dividend date. The date is
conducted in two business days in respect to the date in the
record, i.e. date on which the company reviews the list of its
genuine and trusted shareholders.
The dividend declaration naturally promotes investors to
increase on stock purchases. Since investors are aware and sure
to receive a dividend if they buy more stock prior to ex-
dividend date, they would fully be willing to pay all premiums
required earlier. This poses price increment on stock in within
the days leading to the ex-dividend date. Moreover, the
increment almost equal to amount of the dividend. However, the
actual price variation is based on market activities and is not
influenced by the governing entities.
During the specified ex-dividend date, exchange
decreases the price of the stock to the amount of the dividend to
compensate for the fact that new business investors may not
eligible to receive dividends hence unwilling to pay premiums.
More also, when the market is certainly optimistic about the
stock leading to ex-dividend date, price shifts upwards and
creates thus may be greater than normal dividend value, leading
to a net increase in respect of the automatic decrement. Incase

dividend is not large; the decrement may shift unnoticed
because of back and forth in the normal trading. It is established
that many investors buy shares just slightly before the ex-
dividend date and sell again slightly after the date of record.
This tactic fetches more money.
C. To what extent do you feel the company’s dividend policies
support or hinder their strategies? For example, if the company
is attempting to grow, are they retaining and reinvesting their
earnings rather than distributing them to investors through
dividends? Be sure to substantiate your claims.
As to whether a dividend paid to individual shareholders
influences the issuing firm's retained earnings, it primary
depends entirely on type of dividend accrued. Cash dividends
have a straight impact on retained earnings and the general
issuance of stock on the dividends is quite complicated.
If a firm or organization wish to issue dividends to
shareholders and don't have extra cash on hold, it may opt to
use a stock dividend. Any company may also adopt this
alternative as a way of reducing the value of existing shares,
pulling down the price (P/E) ratio and other financial factors.
Similarly called bonus shares, a dividend on stock alters the
firm balance sheet in many ways depending on the issuance
size.
When the shares outstanding figures increases by less than
20 to 25%, dividend is referred to as small. If a small dividend
is suddenly declared, retained earning value on the account is
debited by specific product on the current price of the market
per share, outstanding number of shares and percentage
dividend on stock. This systematic equation yields the bonus
value for specified shares in dollars. In above case, when
company ABC has 1.5m shares outstanding and selling at $50
per share, thus it may or announces a 10% stock dividend, then
retained earnings account is then debited by the calculations
as1,500,000 * 10% * $50, / $7.5 million.
If this was paid in cash dividend, it would be terminating
the desired or above calculation. But since it has not paid any

cash / value of the above business remains constant, the figure
is reassigned direct from retained earning account through paid-
in capital final to common stock accounts after issuance of
available bonus shares. Moreover, common stock account
(credit) = product of the total new shares issued * by the par
value per share. The R is then credited as paid-in capital
(reminder).
If shares on above example have a par value of 1 cent, then
amount credited to common stock =1,500,000 * 10% * $0.01,
simply= $1,500. The R= $7,498,500 is credited to the paid-in
capital account (R-reminder). The overall worth of the company
pertains or remains constant, but only assets allocation is
altered.
If stock dividend raises up the number of shares outstanding
in more than 20 to 25%, it is referred as a large dividend hence
the accounting varies slightly. In above case, only par value of
the current shares is debited direct from the retained earning
account more also reassigned to common stock account after the
dividend has been distributed. When a company ABC instead
releases a 50% dividend, the total amount debited from retained
earning account should now be =1,500,000 * 50% * $0.01,
simply= $7,500. This because only the par value in the bonus
shares was taken into the account.
When small stock dividend poses a greater impact on the
retained earning account, the overall credit worth of the
company normally remains constant or un altered by stock
dividends for any available size.
3. Bond Issuance
A. By assuming this company already has bonds outstanding,
calculate the following:
1. The new value of the bond if overall rates in the market
increased by 5%
Assuming this company already has bonds outstanding
· The Par value=$1,000

· The Maturity date = 5 years
· The Market interest rate = 8%
· The Annual coupon payment = $80
Present value of a bond = Present Value of the Coupon
Payments (an annuity) + The Present Value of the Par
Value (i.e. Time value of money) = INT = $319.42+$
680.58=$1000.003
Assuming the interest rate increase from 8% to 13%.
New bond value = Present Value of the Coupon Payments (an
annuity) Present Value of the Par Value (time value # money)
given by formula = INT = $281.38+$ 542.76=$824.14
decreased by 5%
Assume the interest rate decrease from 8% to 3%.
New bond value = Present Value of the Coupon Payments (an
annuity) + Present Value of Par Value (time value # money) =
INT = $366.38+$ 862.61=$1228.99
3. The value of the bond if overall rates in the market stayed
exactly the same
The bond value will remain constant if the overall rates in the
market maintain exactly the same/ constant.
Present bond value = Present Value of the Coupon Payments (an
annuity) + Present Value of Par Value (time value # money) =
INT = $319.42+$ 680.58=$1000.003
performed to have in terms of the company’s decision to raise
capital in this manner? In other words, for each situation, would
you consider bond valuation to be a viable option for increasing

capital? Be sure to justify your reasoning.
The fundamental principle behind bond investing is the
fact that interest rates in market and prices of bonds move in
opposite orientations. Incase market interest rates increases,
prices on fixed-rate bonds drops down. This process generally
referred to as interest rate risk. Based on this phenomenon,
bond valuation seizes from being viable option for continuous
increase in capital. Contrary to this where market interest rates
drop down, the bond prices tend to rise. Hence, interest rate risk
unique and similar to all bonds more also to treasury bonds.
A bond’s maturity and coupon rate generally affect how
much its price will change as a result of changes in market
interest rates. If two bonds offer different coupon rates while all
of their other characteristics (e.g., maturity and credit quality)
are the same, the bond with the lower coupon rate generally will
experience a greater decrease in value as market interest rates
rise. Bonds offering lower coupon rates generally will have
higher interest rate risk than similar bonds that offer higher
coupon rates.
When interest rates in the market falls, the bond value
increase has the bond's fixed interest payments becomes greater
compared to amounts available in current bonds issued at new
interest rates in the market.
References:
1.https://www.sec.gov/investor/alerts/ib_interestraterisk.pdf
2. http://www.financeformulas.net/Dividend_Yield.html
3.http://www.investopedia.com/ask/answers/113.asp
4.http://www.myaccountingcourse.com/financial-ratios/return-
on-equity
5.http://www.investopedia.com/articles/investing/091015/how-

dividends-affect-stock-prices.asp
Running Head: TIME VALUE OF MONEY ANALYSIS &
CAPITAL BUDGETING CASE STUDY 1
TIME VALUE OF MONEY ANALYSIS & CAPITAL
BUDGETING CASE STUDY 4

TIME VALUE OF MONEY ANALYSIS & CAPITAL
BUDGETING CASE STUDY
Robert Shulzinsky
Southern New Hampshire University
12/1/2017
Q1. Time value of money refers to the notion that money in the
future is not worth than money in the present (CPF Board,
2015). This fact is supported by the idea that money to be
earned in the future will have higher risk than money earned in
the present. Furthermore, money that is earned in the present
can be invested in the present and earn more income than in the
future. This is the core principle of investment in corporate
finance where any amount of money is worth in the present than
in the future.
Using the free cash flow, the business needs to invest the cash
into projects and assets that will yield greater returns as
opposed to leaving the same idle. This leads to the need for
evaluating capital investment using capital budgeting methods.
Capital budgeting methods will use time value of money to
determine the present value and future value of investment
using discounting of money. This will be determined through
the use of the interest rate which will discount the future value
of the cash flows and asset to give the present value. As it is the
case, milestone 1 discounts the free cash flow from page 43 on

capital lease payments. The time value of money in the case is
used to calculate the value of the company which is discounted
in the present value to determine a suitable amount that the
company can be bought in the present and in the future. This
helps the company to arrive at an amount which is guided and
sound in terms of judgment used in arriving at the sell price.
Q2. The time value of money is affected by the interest rate. As
it is the case in determining the present value, the higher the
interest rate, the lower the present value whereas it is vice versa
for the future value which increases by increase in the interest
rate (Fabozzi, 2014). The best example is in the case of stock
and bond valuation where the market interest rate increase by
5% leads to a higher future value of the stocks which is given
by the value as 24,624 against the reduction of market interest
by 5% given by 16,428. It is also worth noting that the future
value of a bond increases by the value of the interest rate
whereas the period also affects it by increasing the risk
premium. This means that a bond that has a longer period will
have a higher bond value as compared to the bond which has a
shorter bond period.
With the introduction of risk, a higher interest is the equivalent
premium (risk premium) which is added in order to account for
increased risk. With increased premium, the future value of a
bond increases since risk is factored in to increase the value of
the bond value. With the reduction of interest, the bond value
also decreases. The implication as a company manager is the
need to reduce the time period issued to bonds as well as the
interest rate since the company will be forced to pay higher cash
flows to the bond holders.
Q3. My advice on purchasing the company will be to purchase
the company since the Net present value is positive as well as
the discounted cash flows from the companies in the future is
positive.

References
CFP Board Financial Planning Competency Handbook (US
Edition). (2015) (p. 98).
Fabozzi, F. (2014). Duration, convexity, and other bond risk
measures (p. 5). New Hope, Pa.: Frank J. Fabozzi Associates.
FIN 550 Milestone Four Guidelines and Rubric
Overview: For the final project, you will use this case study to
prepare a financial analysis report for Home Depot Inc. 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 Home Depot. 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.
http://www.sec.gov/Archives/edgar/data/354950/000035495015
000008/hd-212015x10xk.htm
http://snhu-
50_final_project_student_workbook.xlsx
http://snhu-
Rubric
Critical Elements Proficient (100%) Needs Improvement (80%)
Not Evident (0%) Value
Macroeconomic Items:
Implications of Changes
Analyzes implications of interest rate
changes, substantiating claims
Analyzes implications of interest rate
changes, but response or substantiation
is cursory or illogical
Does not analyze implications of interest

rate changes
30
Macroeconomic Items: Stock
Market
Assesses the impact of an issue within
the overall stock market on the
company’s stock valuation numbers or
any other financial variable, supporting
response with evidence
Assesses the impact of an issue within
the overall stock market on the
company’s stock valuation numbers or
any other financial variable, but response
is cursory, illogical, or weakly supported
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
External Factor
Analyzes the impact of a factor external
to the company on the company’s
financial position, justifying reasoning
Analyzes the impact of a factor external
to the company on the company’s
financial position, but response is

cursory, illogical, or weakly supported
Does not analyze the impact of a factor
external to the company on the company’s
financial position
30
Articulation of Response Submission has no major errors related
to citations, grammar, spelling, syntax, or
organization
Submission has major errors related to
organization that negatively impact
readability and articulation of main ideas
Submission has critical errors related to
organization that prevent understanding of
ideas
10
Earned Total 100%
FIN 550 Final Project Guidelines and Rubric
Overview

The final project for this course is the creation of a financial
analysis report.
Financial analysis involves examining historical data to gain
information about the current and future financial health of a
company. Financial analysis can be
applied in a wide variety of situations to give business
managers the information they need to make critical decisions.
The ability to understand financial data is
essential for any business manager.
For this summative assessment, you will provide a financial
analysis report for Home Depot Inc. based on the data in the
case study provided (see link in prompt).
You will be asked to take the topics that you have covered
throughout the course and display your mathematical and
conceptual mastery of them. You will
conduct background calculations and provide managerial
analysis for the following topics: time value of money, stock
valuation, bond valuation, and capital
budgeting.
The project is divided into four milestones, which will be
submitted at various points throughout the course to scaffold
learning and ensure quality final
submissions. These milestones will be submitted in Modules
Two, Four, Six, and Seven. The final submission will be in
Module Nine.
In this assignment, you will demonstrate your mastery of the
following course outcomes:
investments for ensuring an effective portfolio balance between

risk and return
investment option for maximizing shareholder value
financing option for raising adequate capital
by utilizing capital budgeting estimates for ensuring effective
decision making
financial decision making for ensuring alignment with strategic
objectives
Prompt
Using this case study, prepare a financial analysis report for
Home Depot Inc. For your calculations, use the Final Project
Student Workbook, which includes tabs
specific to each milestone. Be sure to 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. Also
include a discussion of macroeconomic variables that might
impact the company’s financial
decision making and strategic objectives. 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.
http://www.sec.gov/Archives/edgar/data/354950/000035495015

000008/hd-212015x10xk.htm
http://snhu-
Specifically, you must address the critical elements listed
below. Most of the critical elements align with a particular
course outcome (shown in brackets).
I. Time Value of Money
A. Calculate the following time value of money figures:
1. Calculate the present value of the company based on the
given interest rate and expected revenues over time.
2. Suppose the risk of the company changes based on an internal
event. Recalculate the present value of the company.
3. Suppose that a potential buyer has offered to buy this
company in five years. Based on the present value you
calculated above, what
would be a reasonable amount for which the company should be
sold at that future time?
B. What are the implications of the change in present value
based on risk? In other words, what does the change mean to the
company, and how
would you, as a financial manager, interpret it? Be sure to
justify your reasoning.
C. Based on the future value of the company that you
calculated, and being mindful of the need to effectively balance
portfolio risk with return,
what recommendation would you make about purchasing the

company as an investment at that price? Be sure to substantiate
your reasoning.
II. Stock Valuation
A. Based on the figures provided, calculate each of the
following:
1. The new dividend yield if the company increased its dividend
per share by 1.75
2. The dividend yield if the firm doubled its outstanding shares
the new dividend yield you calculated above
performed to have in terms of shareholder value? In other
words, suppose the
company’s goal is to maximize shareholder value. How will
each of the situations support or inhibit that goal? Be sure to
justify your reasoning.
C. To what extent do you feel the company’s dividend policies
support or hinder their strategies? For example, if the company
is attempting to
grow, are they retaining and reinvesting their earnings rather
than distributing them to investors through dividends? Be sure
to substantiate your
claims.
III. Bond Issuance
A. Assuming this company already has bonds outstanding,
calculate the following:
increased by 5%

decreased by 5%
3. The value of the bond if overall rates in the market stayed
exactly the same
performed to have in terms of the company’s decision to raise
capital in this
manner? In other words, for each situation, would you consider
bond valuation to be a viable option for increasing capital? Be
sure to justify
your reasoning.
C. To what extent do you feel the company’s bond issuance
policies support or hinder their strategies? For example, if the
company is attempting
to fund operating expenses, refinance old debt, or change its
capital structure, are they issuing sufficient bonds to achieve
these goals? Be sure
to substantiate your claims.
IV. Capital Budgeting Data
A. Suppose the company is considering a potential investment
project to add to its portfolio. Calculate the following items:
1. The net present value (NPV) of the project
2. The internal rate of return (IRR) of the project
B. What are the implications of these calculations? In other
words, based on each of the calculations, and being mindful of
the need to balance

portfolio risk with return, would you recommend that the
company pursue the investment? Why or why not? Be sure to
substantiate your
claims.
C. What is the difference between NPV and IRR? Which one
would you choose for evaluating a potential investment and
why? Be sure to support
your reasoning with evidence.
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.
Milestones
Milestone One: Time Value of Money (Section I)
In Module Two, you will submit a draft of the Time Value of

Money section of the final project, along with your supporting
explanations. 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 graded
with the Milestone One Rubric.
Milestone Two: Stock Valuation and Bond Issuance (Sections II
and III)
In Module Four, you will submit a draft of the Stock Valuation
and Bond Issuance sections of the final project, along with your
supporting explanations. 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 graded with the Milestone Two Rubric.
Milestone Three: Capital Budgeting Data (Section IV)
In Module Six, you will submit a draft of the Capital Budgeting
Data section of the final project, along with your supporting
explanations. 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 graded with the Milestone Three Rubric.
Milestone Four: Macroeconomic Items (Section V)
In Module Seven, you will submit a draft of the Macroeconomic
Items section of the final project, along with your supporting
explanations. 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 graded with the Milestone Four Rubric.
Final Project Submission: Financial Analysis Report
In Module Nine, you will submit your financial analysis report
along with your completed Final Project Student Workbook. It
should be a complete, polished
artifact containing all of the critical elements of the final
project. It should reflect the incorporation of feedback gained
throughout the course. This submission
will be graded with the Final Project Rubric.
Deliverables
Milestone Deliverable Module Due Grading
One Time Value of Money (Section I) Two Graded separately;
Milestone One Rubric
Two Stock Valuation and Bond Issuance (Sections II and
III)
Four Graded separately; Milestone Two Rubric
Three Capital Budgeting Data (Section IV) Six Graded
separately; Milestone Three Rubric
Four Macroeconomic Items (Section V) Seven Graded
separately; Milestone Four Rubric
Final Project Submission: Financial Analysis Report Nine
Graded separately; Final Project Rubric

Final Project Rubric
Guidelines for Submission: Your financial analysis report
should be 7 to 12 pages, not including a title page and
references page. It should use 12-point Times
New Roman font, double spacing, and one-inch margins. All
citations and references should be formatted according to APA
style. Also submit your completed
Final Project Student Workbook.
Critical Elements Exemplary Proficient Needs Improvement Not
Evident Value
Time Value of Money:
Figures
[FIN-550-01]
Accurately calculates requested
figures (100%)
Calculates figures, but with gaps
in accuracy or detail (70%)
Does not calculate figures (0%) 6.33
Implications
[FIN-550-01]

Meets “Proficient” criteria and
demonstrates keen insight into
the interrelationship between risk
and present value (100%)
Analyzes implications of change in
present value based on risk,
justifying reasoning (90%)
Analyzes implications of change in
present value based on risk, but
response or reasoning is cursory
or illogical (70%)
Does not analyze implications of
change in present value based on
risk (0%)
6.33
Future Value
[FIN-550-01]
using time value of money for
recommending investments
(100%)
Makes recommendation about
purchasing company at future
price, substantiating claims (90%)
Makes recommendation about
purchasing company at future

price, but response or
substantiation is cursory or
illogical (70%)
Does not make recommendation
about purchasing company at
future price (0%)
6.33
Stock Valuation:
Calculations
[FIN-550-02]
figures (100%)
Stock Valuation:
Shareholder Value
[FIN-550-02]
the effects of changing financial
variables on shareholder value
(100%)
Analyzes the effects of each
calculation on shareholder value,

calculation on shareholder value,
but response or reasoning is
cursory or illogical (70%)
Does not analyze the effects of
each calculation on shareholder
value (0%)
6.33
Stock Valuation:
Dividend Policies
[FIN-550-02]
the relationship between
dividend policies and strategies
for increasing shareholder value
(100%)
Assesses the extent to which
dividend policies support or
hinder company strategies,
dividend policies support or
hinder company strategies, but
or illogical (70%)
Does not assess the extent to

which dividend policies support or
hinder company strategies (0%)
6.33
Bond Issuance: Bonds
[FIN-550-03]
figures (100%)
Bond Issuance: Raising
Capital
[FIN-550-03]
the effects of changing market
conditions on decisions to raise
capital (100%)
calculation on the company’s
decision to raise capital, justifying
reasoning (90%)

calculation on the company’s
decision to raise capital, but
or illogical (70%)
Does not analyze the effects of
each calculation on the company’s
decision to raise capital (0%)
6.33
Bond Issuance: Bond
Issuance Policies
[FIN-550-03]
the relationship between bond
issuance policies and strategies
for raising capital (100%)
bond issuance policies support or
hinder company strategies,
bond issuance policies support or
hinder company strategies, but
or illogical (70%)
Does not assess the extent to
which bond issuance policies
support or hinder company

strategies (0%)
6.33
Capital Budgeting Data:
Potential Investment
[FIN-550-04]
figures (100%)
Pursuing the
Investment
[FIN-550-04]
using NPV and IRR to judge
potential investment
opportunities (100%)
Analyzes the implications of each
calculation on the
recommendation to pursue the
investment, substantiating claims
(90%)
Analyzes the implications of each
calculation on the

investment, but response or
illogical (70%)
Does not analyze the implications
of each calculation on the
investment (0%)
6.33
Difference
[FIN-550-04]
using NPV and IRR to judge
potential investment
opportunities (100%)
Accurately characterizes the
difference between NPV and IRR
and explains which would be
chosen for evaluating a potential
investment and why, supporting
reasoning with evidence (90%)
Characterizes the difference
between NPV and IRR and
explains which would be chosen
for evaluating a potential
investment and why, but response
is cursory or inaccurate or

evidence is not supportive (70%)
Does not characterize the
difference between NPV and IRR
and does not explain which would
be chosen for evaluating a
potential investment and why
(0%)
6.33
Implications
[FIN-550-05]
the relationship between interest
rate changes and financial
variables in a company (100%)
Analyzes implications of interest
rate changes, substantiating
claims (90%)
Analyzes implications of interest
rate changes, but response or
illogical (70%)
Does not analyze implications of
interest rate changes (0%)
6.33

Stock Market
[FIN-550-05]
the relationship between stock
market fluctuations and financial
variables in a company (100%)
Assesses the impact of an issue
within the overall stock market on
the company’s stock valuation
numbers or any other financial
variable, supporting response
with evidence (90%)
Assesses the impact of an issue
within the overall stock market on
the company’s stock valuation
numbers or any other financial
variable, but response is cursory,
illogical, or weakly supported
(70%)
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 (0%)
6.33

External Factor
[FIN-550-05]
the relationship between external
factors and a company’s financial
position (100%)
Analyzes the impact of a factor
external to the company on the
company’s financial position,
Analyzes the impact of a factor
external to the company on the
company’s financial position, but
response is cursory, illogical, or
weakly supported (70%)
Does not analyze the impact of a
factor external to the company on
the company’s financial position
(0%)
6.33
Articulation of
Response
Submission is free of errors
related to citations, grammar,
spelling, syntax, and organization
and is presented in a professional
and easy to read format (100%)

Submission has no major errors
spelling, syntax, or organization
(90%)
Submission has major errors
that negatively impact readability
and articulation of main ideas
(70%)
Submission has critical errors
that prevent understanding of
ideas (0%)
5.05
Earned Total 100%
1 Time Value of MoneyMilestone One: Time Value of Money
(please fill in shaded YELLOW cells, row 6D - 6H)
Explanations:Interest Rate8%FCF (Free Cash Flow) is the net
change in cash generated by the operations of a business during
a reporting period, minus cash outlays for working capital,
capital expenditures, and dividends during the same period. FCF
is a strong indicator of the ability of an entity to remain in
business.
Note: For this part of the Milestone, please use page 43 -capital
lease payments under property.

FCF1FCF2FCF3FCF4FCF5Amounts*1006928845739658Pv*(93
1.48)($795.61)($670.79)($543.19)($447.82)Total
Pv*(3388.89)*In millionsInterest Rate (given) - in our scenario
we will use 8% interest rate. This rate is an implicit rate, the
average rate that lease consumers face on the current
market.Pv=FVN/(1+I)^NPV(I,N,0,FV)
2 Stock and Bond ValuationMilestone Two: Stock Valuation
and Bond Issuance (please fill in the shaded YELLOW cells)
Explanations:Cash Dividend - distribution of the corporate
income. They are not expenses and do not appear on Income
Statement.
Note: Part of Statement of Cash Flows. Please be aware that
corporation list 5 years worth of dividends, but only 3 years
worth of dividend yields (Hint: research F-1).
PART I: STOCK VALUATIONDividend from Financial
Statements:YearCash Div/share ($)Dividend YieldStockholder's
Equity (in millions)Stock PriceDividend Yield - annual cash
dividend per share of common stock divided by the market price
of a share of the common stock (Dividend yield = Annual
Dividend/Current Stock Price).
Note: Current Stock Price is not part of the Financial
Statements - calculated using the formula for Dividend
Yield20121.163.28%17,89835.3220131.566.44%17,77724.2320
141.884.79%12,52239.261. Stock Valuation - The new dividend
yield if the company increased its dividend per share by
1.75YearCash Div/Share ($) +1.75Dividend YieldStockholder's
Equity (in millions)Stock PriceStockholder's Equity = Assets -
Liabilities. Equity represents the ownership of a corporation.
Owners are called stockholders because they hold stocks or
shares of the company. The goal of every corporate manager is
to generate shareholder value.
20122.918.24%17,89835.3220133.3113.66%17,77724.2320143.
639.25%12,52239.262. The dividend yield if the firm doubled
it's outstanding sharesReturn on Equity - for this part we will

modify and use return on investment instead.
Using the formula: Dividend (+1.75)/+[(new price-old
price)/old price]
Note - for this part, you will need extra price from 2011
YearCash Div/Share ($) Dividend YieldStockholder's Equity (in
millions) -doubledStock
Price20120.581.64%35,79635.3220130.783.22%35,55424.23201
40.942.39%25,04439.26Bonds are a long-term debt for
corporations. In buying a bond, the bond-owner lends money to
the corporation. The borrower promises to pay specified interest
rate during the loan's lifetime and at the maturity, payback the
entire principle. In case of bankruptcy, bondholders have
priority over stockholders for any payment distributions.
Bonds = Debt...............Bondholders = Lenders
Stock=Equity................Stockholders = Owners
the new dividend yield you calculated aboveYearCash
Div/Share ($) +1.75Stock PriceReturn on
Investment20122.9135.3220133.3124.233.00%20143.6339.264.2
5%Calculation: Please note that for bond calculations, only one
bond is used and we assume February 1, 2015 is the origination
date. The value on financial statements will be considered PV
(Present value). Maturity date is assumed for February 2036 and
payment schedule adjusted to February 1 and August 1.
The following Senior-Note was used from page 44:
5.875% Senior Notes; due December 16, 2036; interest payable
semi-annually on June 16 and December 16
PV (Present Value) = 2,963 million
Our scenario: 5.875% Senior Notes; due February 1, 2036;
interest payable semi-annually on February 1 and August 1
PV (Present Value) = 2,963 million

PART II: BOND ISSUANCECurent Bonds from Financial
StatementsPresent ValuePV($2,963)PeriodsN40Semi-annual
payment: 2036-2016 = 20 years *2 = 40
periodsInterestI2.9375Interest paid semi-annually: 5.875%/2 =
2.9375%PaymentsPMT0This bond does not make regular PMT
except for interestFuture ValueFV$9,433.58CALCULATING
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
ValuePV($2,963)PeriodsN40InterestI5.4375Please adjust
interest5.875%+5% = 10.875%/2 = 5.4375%PaymentsPMT0FV
(Future Value Calculation) - using Excel FormulaFuture
ValueFV$24,634.04CALCULATING FV (please see help on the
right hand side)Step 1) Select FormulasStep 2) Click on
FinancialStep 3) Select FV - you will see the formula below2.
The new value of the bond if overall rates in the market
decreased by 5%Step 4) Enter the following:Rate - enter as
decimal, no % sign. Example: 4% as 0.04Present
ValuePV($2,963)Nper - number of period. Enter a whole
number. Example 50PeriodsN40Pmt - payment. Our example
does not assume regular payments disbursing
principalInterestI0.4375Please adjust interest5.875%-5% =
0.875%/2 = 0.4375%Pv - Present value. Enter as negative.
Example $1,000 should be -1000PaymentsPMT0Type - leave
blankFuture ValueFV$3,528.32CALCULATING 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
3 Capital Budgeting DataMilestone Three: Capital Budgeting
Data (please fill in the shaded YELLOW cells)
WACC8%Capital Budgeting Example Set-upACCEPTInitial
investment $65,000,000REJECTStraight-line Depreciation of
20%Initial OutlayCF1CF2CF3CF4CF5Income Tax
@35%($65,000,000)WACC of 8% approximately. (HD WACC
was about 8.83%)Cash Flows
(Sales)$50,000,000$45,000,000$65,500,000$55,000,000$25,000
,000Cash Flow (which in this case are Sales Revenues) are as

follows: - Operating Costs (excluding
Depreciation)$38,500,000$38,500,000$38,500,000$38,500,000$
38,500,000CF1: $50,000,000 - Depreciation Rate of
20%(13,000,000)(13,000,000)(13,000,000)(13,000,000)(13,000,
000)CF2: $45,000,000Operating Income
(EBIT)24,500,00019,500,00040,000,00029,500,000(500,000)CF
3: $65,500,000 - Income Tax (Rate
35%)8,575,0006,825,00014,000,00010,325,000(175,000)CF4:
$55,000,00After-Tax
EBIT15,925,00012,675,00026,000,00019,175,000(325,000)CF5:
$25,000,000 +
Depreciation13,000,00013,000,00013,000,00013,000,00013,000
,000Operating CostsCash
Flows($65,000,000)28,925,00025,675,00039,000,00032,175,000
12,675,000CF1: $25,500,000CF2: $25,500,000Select from drop
downs below:CF3:
$25,500,000NPV($21,453,688.38)REJECTCF4:
$25,500,000CF5: $25,500,000IRR34%ACCEPTWACC- 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.
4 Interest Rate ImplicationsMilestone Four: Interest Rate
Implication (please fill in shaded YELLOW cells)
Explanation:We will use Milestone 1 and Time Value of Money
for Milesotne 4 analysis 1. Original Scenario from Milestone 1 -
Time Value of Money using 8%Two cases will be
analyzed:Interest Rate8.00%Lower Interest Rate at 5%Higher
Interest Rate at
15%FCF1FCF2FCF3FCF4FCF5Amounts*11311110810197Pv*(
104.63)(95.16)(85.73)(74.24)(66.02)Total Pv*(425.78)*In
millions2. Change in interest rate and its implications - Lower
Interest Rate (5%)Interest
Rate5.00%FCF1FCF2FCF3FCF4FCF5Amounts*1131111081019
7Pv*(107.62)(100.68)(93.29)(83.09)(76.00)Total

Pv*(460.69)*In millions3. Change in interest rate and its
implications - Higher Interest Rate (15%)Interest
Rate15.00%FCF1FCF2FCF3FCF4FCF5Amounts*113111108101
97Pv*(98.26)(83.93)(71.01)(57.75)(48.23)Total Pv*(359.18)*In
millions
SUMMARYSUMMARY TABNote: This process could take up
to 20 secondsTAB 11. Time Value of MoneyTAB 3Capital
Budgeting1006928845739658($65,000,000)$50,000,000$45,000
,000$65,500,000$55,000,000$25,000,000FALSEFALSEFALSEF
ALSEFALSE$38,500,000$38,500,000$38,500,000$38,500,000$
38,500,000TAB 2PART I - Stock
ValuationFALSE$9,785,570.71FALSE50%1.163.28%17,898TR
UETAB 4Interest Rate
Implication1.566.44%17,777TRUE1.884.79%12,522TRUEPAR
T II - Bond IssuanceCurrent Bond
ValueFALSE$9,433.28FALSE$9,433.58New Value
+5%FALSE5.4375TRUE5.4375$24,634.04FALSE$24,634.04Ne
w Value - 5%0.4375TRUE0.4375$3,528.32FALSE$3,528.32
RUN Summary
CLEAR DATA

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