Question
Reach out to team members and assign roles. You all need to contribute. Rotating responsibilities is a suggested strategy in this team environment. Capital Asset
Reach out to team members and assign roles. You all need to contribute. Rotating responsibilities is a suggested strategy in this team environment. Capital Asset Pricing Model (CAPM): Your team needs to investigate certain items to compute the required rate of return of your company. The expected market return for the coming year is 6%, you need to find the current rates for the 10 year Treasury bond to establish a risk-free rate. Please remember to cite your source of this data and justify your reasoning for using this source or data. Your team will also need to find a rationale for estimating beta since you do not have a long history on the stock market since you are recently listed. You realize that ACME Iron is capital intensive so the beta for the company will be influenced by this point. Since ACME Iron is an iron producer its beta should be in line with similar companies. Your team will need to analyze other companies or this industry to come up with a beta calculation for ACME Iron. Please document your investigation, sources and justify your choice of beta for Acme.
ACME Iron |
| Balance Sheet | |
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Assets | |||
Current assets: | 2014 | 2015 | change |
Cash | 500,000 | 600,000 | 100,000 |
Investments | 1,000,000 | 1,025,000 | 25,000 |
Inventories | 110,000,000 | 117,000,000 | 7,000,000 |
Accounts receivable | 11,750,000 | 12,500,000 | 750,000 |
Pre-paid expenses | 2,500,000 | 2,600,000 | 100,000 |
Other | 0 | 0 | - |
Total current assets | 125,750,000 | 133,725,000 | 7,975,000 |
Fixed assets: | 2014 | 2015 | change |
Property and equipment | 165,000,000 | 175,000,000 | 10,000,000 |
Leasehold improvements | 0 | 0 | - |
Equity and other investments | 55,000,000 | 65,000,000 | 10,000,000 |
Less accumulated depreciation | 15,000,000 | 15,500,000 | 500,000 |
Total fixed assets | 235,000,000 | 255,500,000 | 20,500,000 |
Other assets: | 2014 | 2015 | change |
Goodwill | 75,000,000 | 70,000,000 | (5,000,000) |
Total other assets | 75,000,000 | 70,000,000 | (5,000,000) |
Total assets | 435,750,000 | 459,225,000 | 23,475,000 |
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Liabilities and owner's equity | |||
Current liabilities: | 2014 | 2015 | change |
Accounts payable | 40,500,000 | 42,400,000 | 1,900,000 |
Accrued wages | 85,000,000 | 90,500,000 | 5,500,000 |
Accrued compensation | 10,000,000 | 10,855,000 | 855,000 |
Income taxes payable | 4,024,000 | 4,697,000 | 673,000 |
current portion of LT debt | 5,500,000 | 10,350,000 | 4,850,000 |
Other | 0 | 0 | - |
Total current liabilities | 145,024,000 | 158,802,000 | 13,778,000 |
Long-term liabilities: | 2014 | 2015 | change |
Long term debt | 125,000,000 | 130,000,000 | 5,000,000 |
Total long-term liabilities | 125,000,000 | 130,000,000 | 5,000,000 |
Owner's equity: | 2014 | 2015 | change |
Common stock | 122,000,000 | 122,000,000 | - |
Preferred stock | 16,725,000 | 16,725,000 | - |
Accumulated retained earnings | 27,001,000 | 31,698,000 | 4,697,000 |
Total owner's equity | 165,726,000 | 170,423,000 | 4,697,000 |
Total liabilities and owner's equity | 435,750,000 | 459,225,000 | 23,475,000 |
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