Application: To Call or Not To CallDecisions involving capital expenditures often require managers to weigh the costs and benefits of different options related to the financing of a project. For instance, deciding when to call a bond before maturity due to changing interest rates can lower the overall cost of a project significantly through refinancing. So, it is important to be able to understand the real interest rate being paid out to your bondholders (yield) at any given time. ?For this Assignment, review the information presented in Problem 7-18 on page 255 of your course text. You will utilize the information in this week's readings and media to make a recommendation with regard to when to call a bond.
* Prepare a spreadsheet using Excel or a similar program in which you compute the items listed in parts a, b, and d. Be sure to compute the Yield-to-Maturity (YTM) and Yield-to-Call (YTC) for each of years 5, 6, 7, 8, and 9.
* Utilizing Word, prepare a written report to your finance director:
* Include a detailed explanation of the conclusion you reached concerning whether or not to call the bond before maturity.
* If your recommendation is to call the bond early, explain when to call the bond and your rationale.
* Discuss the advantages and disadvantages of using a long-term loan instead of a bond.
* Submit your Assignment (both your Excel and Word files) by Day 7.?General Guidance on Application Length:?Your Assignment, due by Day 7, will typically be 2?3 pages in length as a general expectation/estimate for each bullet point. Refer to the rubric for the Week 3 Assignment for grading elements and criteria. Your Instructor will use the rubric to assess your work.
Week 3 Application Rubric To Call or Not to Call Calculations - Available Points Percent Score: 100% Available Points: Total Points Available: Minimum Requirements - Both Categories Must Be Met or Peer Review Post(s) will not be graded Acceptable Timeliness Submitted by the deadline Calculations x Analysis x Follows Specific Weekly Followed All Peer Review Instructions in Instructions (Focused) Classroom and Syllabus Calculations x Analysis x Assessment of Qualified Assignments Criteria - Calculations Calculation for: Yield-toThe author uses MS Excel, and the formulas and calculations Maturity (YTM) (4 points max) are correct. Calculation for: Yield-to-Call (YTC) - 5 year (4 points max) The author uses MS Excel, and the formulas and calculations are correct. Calculation for: Yield-to-Call (YTC) - Years 6 thru 9 (16 points max) The author uses MS Excel, and the formulas and calculations are correct. Calculation for: Future Value of an Annuity The author uses MS Excel, and the formulas and calculations are correct. Criteria - Analysis, Decisions, Conclusions Element (1): Written Report (12 pts. max) A written report to the author's Finance Director is prepared which includes a detailed explanation of the conclusion the author reached concerning whether or not to call the bond before maturity along with sound rationale. The report identifes the correct decision to make based on correct analysis of the calculations and provides an explanation of how the author reached that decision including specifics from the analysis that led the author to the decision. 1 Element (1): Written Report (12 pts. max) A written report to the author's Finance Director is prepared which includes a detailed explanation of the conclusion the author reached concerning whether or not to call the bond before maturity along with sound rationale. The report identifes the correct decision to make based on correct analysis of the calculations and provides an explanation of how the author reached that decision including specifics from the analysis that led the author to the decision. The author analyzes the advantages and disadvantages of using a long-term loan instead of a bond. At least two Element (2): Bonds vs. Loans advantages and disadvantages are analyzed and each is (12 pts. max) illustrated by example. At least two outside resources are used. 0 0.0 Writing exhibits evidence of thoughtful critical analysis and thinking; careful examination is made of assumptions and possible biases, with detailed supporting rationale. Writing Element (3): Critical Thinking, synthesizes the classroom experiences and content; analyze Analysis, and Synthesis (12 patterns or connections between theory and practice; and pts. max) draws logical conclusions based on well-reasoned arguments. New questions may be presented based on synthesis of ideas and input. Element (4) Standards of Scholarship (10 pts. max) Note: Sub-standard writing, format, or APA will result in lower scores in other categories as without these elements, the content areas above are inherently weaker. Writing is clear, logical, well-organized and appropriate for graduate level work. Writing spell-checked and proofread. Sentences are complete and grammatically correct. Words are chosen for their precise meaning. Tone is professional and free from bias (i.e., sexism, racism). Consistent form and style are used. Each citation is referenced, and only cited sources are referenced, aligned with APA format. Citations are included at the end of the memo, as required. When students reference/reuse their own work, they provide self-reference per APA rules and Walden policy. 2014 Laureate Education, Inc. 2 Rubric Call 24 46 70 or Peer Review Post(s) will not be graded Unacceptable Not submitted by the deadline 24 46 70 Score Score: Total Score: Met Met Did not follow Instructions in Classroom and Syllabus Met Met Assignments Instructor Assessment Calculations are Accurate and Results are Correct (100%) Instructor Feedback x Calculations are on the Right Track, But Some Errors (50%) Calculations are Not Provided Or Not Appropriate (0) Weighting Calculations are Accurate and Results are Correct (100%) 4 x Calculations are on the Right Track, But Some Errors (50%) Calculations are Not Provided Or Not Appropriate (0) Calculations are Accurate and Results are Correct (100%) x Calculations are on the Right Track, But Some Errors (50%) Calculations are Not Provided Or Not Appropriate (0) Calculations are Accurate and Results are Correct (100%) x Calculations are on the Right Track, But Some Errors (50%) Calculations are Not Provided Or Not Appropriate (0) Weighting 0 Criteria Met Instructor Assessment Exemplary (100%) x Proficient (85%) Student demonstrates exemplary work on all criteria listed for category. Opportunity for Improvement (75%) 3 Student demonstrates exemplary work on all criteria listed for category. Unacceptable (0) Exemplary (100%) x Student demonstrates exemplary work on all criteria listed for category. Proficient (85%) Opportunity for Improvement (75%) Unacceptable (0) Exemplary (100%) Proficient (85%) x Student demonstrates exemplary work on all criteria listed for category. Opportunity for Improvement (75%) Unacceptable (0) Exemplary (100%) x Proficient (85%) Student demonstrates exemplary work on all criteria listed for category. Opportunity for Improvement (75%) Unacceptable (0) Weighting Exemplary (100%) 12 ## x Proficient (85%) Student demonstrates exemplary work on all criteria listed for category. Opportunity for Improvement (75%) Unacceptable (0) 4 Instructor Feedback Instructor Feedback 5 6 Exemplary Criteria A written report to the author's Finance Director is prepared which includes a detailed explanation of the conclusion the author reached concerning whether or not to call the bond before maturity along with Element (1): Written Report sound rationale. The report identifes the correct decision to make based on correct analysis of the calculations and provides an explanation of how (12 pts. max) the author reached that decision including specifics from the analysis that led the author to the decision. The author analyzes the advantages and disadvantages of using a long- Element (2): Bonds vs. Loans term loan instead of a bond. At least two advantages and disadvantages are analyzed and each is illustrated by example. At least two outside (12 pts. max) resources are used. Writing exhibits evidence of thoughtful critical analysis and thinking; careful examination is made of assumptions and possible biases, with Element (3): Critical Thinking, detailed supporting rationale. Writing synthesizes the classroom Analysis, and Synthesis (12 experiences and content; analyze patterns or connections between theory and practice; and draws logical conclusions based on well-reasoned pts. max) arguments. New questions may be presented based on synthesis of ideas and input. Element (4) Standards of Scholarship (10 pts. max) Note: Sub-standard writing, format, or APA will result in lower scores in other categories as without these elements, the content areas above are inherently weaker. Writing is clear, logical, well-organized and appropriate for graduate level work. Writing spell-checked and proofread. Sentences are complete and grammatically correct. Words are chosen for their precise meaning. Tone is professional and free from bias (i.e., sexism, racism). Consistent form and style are used. Each citation is referenced, and only cited sources are referenced, aligned with APA format. Citations are included at the end of the memo, as required. When students reference/reuse their own work, they provide self-reference per APA rules and Walden policy. 7 Proficient Criteria A written report to the author's Finance Director is prepared which includes a detailed explanation of the conclusion the author reached concerning whether or not to call the bond before maturity. The author discusses the advantages and disadvantages of using a long-term loan instead of a bond. Writing exhibits some evidence of thoughtful critical analysis and thinking. Examination is made of assumptions and possible biases, with some supporting rationale. Writing synthesizes the classroom experiences and content; analyzes patterns or connections between theory and practice; and draws logical conclusions based on wellreasoned arguments adequately, but not superbly. New questions are not presented based on synthesis of ideas and input. Writing is somewhat clear, logical, well-organized and appropriate for graduate level work. Writing was not spell-checked and proofread. Most sentences were complete and grammatically correct. Most words were chosen for their precise meaning. Tone is professional and free from bias (i.e., sexism, racism). Consistent form and style are used. The author provides the appropriate citation using APA format at the conclusion of the memo.When students reference/reuse their own work, they provide self-reference per APA rules and Walden policy. 8 Opportunity for Improvement A written report to the author's Finance Director is not prepared or is cursory in nature and does not include a detailed explanation of the conclusion reached concerning whether or not to call the bond before maturity. Author does not discuss advantages/disadvantages or discusses advantages/disadvantages in a cursory way. Writing exhibits little or no evidence of thoughtful critical analysis and thinking. Examination is not made of assumptions and possible biases. Writing does not synthesize the classroom experiences and content; nor analyzes patterns or connections between theory and practice. Logical conclusions based on well-reasoned arguments are not exhibited. New questions are not presented based on synthesis of ideas and input. Writing is not very clear, logical, well-organized or appropriate for graduate level work. Writing was not spell-checked and proofread. Too many sentences were not complete and grammatically correct for graduate level work. Word choice could be better. Tone is professional and free from bias (i.e., sexism, racism). Consistent form and style were not used. Some citations were referenced, and many cited sources were not referenced, or aligned with APA format. When students reference/reuse their own work, they provide self-reference per APA rules and Walden policy. 9
