Analyze Financing and investing activities, determine corporate evaluation and Evaluate annuities for the attached microsoft excel workbook.Also Discuss whether McCormick & Company should invest in building a new factory in Largo, Maryland. Give credit to any sources you use to support your statements.
Discuss how understanding risk and returns will impact this decision. Give credit to any sources you use to support your statements.
Later in the week, after you are back in your office, you have a follow-up discussion with your MCS colleagues in an effort to summarize the key lessons from your discussion on risk and returns at the meeting. Respond to your colleagues’ original discussion posts and give credit to any sources you use to support your statements.
Instructions
To complete this workbook, answer the questions on each worksheet.
McCormick & Company is considering building a new factory in Largo, Maryland. James Francis, a land
industrial zoned land with a listed sale price of $3,000,000.00 for the land. McCormick & Company is interested in
manufacturing company. The competing manufacturing company has made a full offer of $3,000,000.00 for the la
knows they can make an offer to outbid the competitor to obtain the land. So, McCormick & Company decided to
the land.
Now, the land owner, James Francis, must make a decision between the two competing offers. To make this decis
the Future Value (FV) of each offer. James’s bank is offering a 12 percent (12%) interest rate when invested throu
stock portfolios. Let’s help James make his decision by answering the following questions using the template to th
1. What is the Future Value (FV) of each offer?
2. Based on your Future Value calculations, which offer should James accept?
McCormick & Company has decided in order for the company to have a minimal impact on current cash flows, th
seventy percent (70%) Loan to Value (LTV) of the $4,424,000.00 offer in the form of a commercial acquisition and
the land. This means McCormick & Company will need to make a thirty percent (30%) down payment to secure th
development loan. McCormick & Company is considering three different loan options:
Loan A: 20-year loan with a fixed annual interest rate of 6 percent
Loan B: 10-year loan with a fixed annual interest rate of 4.5 percent
Loan C: 15-year loan with a fixed annual interest rate of 5 percent
3. How much of the total $4,424,000.00 offer will be financed?
4. Which loan will have the lowest monthly payment?
5. Which loan will have the lowest total payback amount?
6. Would you recommend McCormick & Company select the loan with lowest monthly payment or lowest total p
d. James Francis, a land owner, is selling a 4.35 acre parcel of
ormick & Company is interested in the land and so is another
ull offer of $3,000,000.00 for the land. McCormick & Company
McCormick & Company decided to offer $4,424,000.00 to obtain
mpeting offers. To make this decision, James should first identify
interest rate when invested through the bank-managed growth
questions using the template to the right.
l impact on current cash flows, the company will need to borrow
m of a commercial acquisition and development loan to purchase
down payment to secure the commercial acquisition and
1
N
I/Y
2
N
I/Y
3
Principal
Percent Down
4
Loan
Loan A
Loan B
Loan C
N
5
Loan
Loan A
Loan B
Loan C
N
monthly payment or lowest total payment and why?
6
PV
PMT
FV
PV
PMT
FV
I/Y
PV
PMT
I/Y
PV
PMT
Amount Financed
Total Paid
Now that McCormick & Company has secured the land for the new factory through a loan, now it is time to const
Instead of using operating cash flow to fund the construction of the new factory, McCormick & Company has dec
To raise additional capital the company is considering issuing additional shares of stock. For McCormick & Compa
much it will cost the company to issue stock, the company must determine the expected return on the stock in re
systematic risk. We can help McCormick & Company with this by answering the following questions using the pro
below:
McCormick & Company uses the 10-Year Treasury Constant Maturity Rate as the risk-free rate.
to the U.S. Treasury.
McCormick & Company has disclosed the company’s levered Beta is 0.60 (MarketWatch, 7/1/2019).
McCormick & Company has disclosed the company’s expected return on the market is 8.03%
To answer the following questions, please use the template to the right.
1. What is McCormick & Company’s expected return on the issuance of stock using CAPM?
In the CAPM, we examined the expected return on the market as a whole. In an effort to estimate the expected r
Company’s stock, we will use the Dividend Discount Model (DDM). We can help McCormick & Company with this
following questions using the provided information below:
McCormick & Company’s expected dividend per share next year is $2.28
McCormick & Company’s expected dividend per share constant growth rate is 8.70% (as of May 2019)
McCormick & Company’s stock price per share was $155.70 on 7/1/2019
2. Using the Dividend Discount Model (DDM), what is the cost of equity?
To find the cost of equity using DDM, we take the original equation
and rearrange the equation:
??????
???? =
+??
??
??=
??????
???? ? ??
ugh a loan, now it is time to construct the new factory.
y, McCormick & Company has decided to raise capital.
of stock. For McCormick & Company to determine how
expected return on the stock in relation to the
following questions using the provided information
free rate. As of 7/1/2019, this was 2.03 according
etWatch, 7/1/2019).
arket is 8.03%
sing CAPM?
1
n effort to estimate the expected return of McCormick &
McCormick & Company with this by answering the
8.70% (as of May 2019)
??????
2
??
???
=
????
+
?? × (????? ? ???? )
)
Questions
1. Liz has retiring from the U S Postal Service and will turn 70 next year. After 39 years of service, her monthly pe
qualify for Social Security. Liz has accumulated $700,000 in her thrift savings plan. The government requires tha
move it to a IRA. All of the money is pretax and tax can be avoided if it is moved to the IRA. The annuity will be c
expectancy of 17.5 years after age 70. https://www.ssa.gov/cgi-bin/longevity.cgi. The current US Treasury Long
much will she get as an annuity monthly payment? Should Liz take the annuity or move the money to the IRA.? T
she take out 4% of the amount each year.
2. Kathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR. She and her hu
Garrison, MD and their budget is $500,000. They have $100,000 for the down payment and McCormick will pay
considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%. Calculate the monthly p
and insurance will add $1,000 per month to which ever mort
get they choose. What should Kathy and Stan do?
f service, her monthly pension is $7,500. She does not
government requires that she convert it to an annuity or
RA. The annuity will be calculated based on her life
Treasury Long term bond rate is 3.0%. How
the money to the IRA.? The Tax regulations require that
or of HR. She and her husband Stan plan to buy a house in
and McCormick will pay for closing costs. They are
Calculate the monthly payment for each. Property taxes
Answer Questions 1 and 2 here. Show your calculations.
1
2
how your calculations.

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