There are 6 Exercises to be completed. Important note: each case has the questions at the end- there is no need to answer those question and only to address “Action Items” in all exercises.Additionally I’d like to ask for a special "private" request for this assignment to keep the content private.

Exercise 1: Case 1- East Coast Yachts

Action Items:1. Read the East Coast Yachts case below.2. Complete the 5-Step Critical Thinking Decision Making Matrix. (Attached below.)3. Write a 1-page business brief of your analysis.4. Attach your completed matrix as an appendix to your business brief.

EAST COAST YACHTS In 1969, Tom Warren founded East Coast Yachts. The company’s operations are located near Hilton Head Island, South Carolina, and the company is structured as a sole proprietorship. The company has manufactured custom midsize, high-performance yachts for clients, and its products have received high reviews for safety and reliability. The company’s yachts have also recently received the highest award for customer satisfaction. The yachts are primarily purchased by wealthy individuals for pleasure use, Occasionally, a yacht is manufactured for purchase by a company for business purposes. The custom yacht industry is fragmented, with a number of manufacturers. As with any industry, there are market leaders, but the diverse nature of the industry ensures that no manufacturer dominates the market. The competition in the market, as well as the product cost, ensures that attention to detail is a necessity. For instance, East Coast Yachts will spend 80 to 100 hours on hand-buffing the stainless steel stem-iron, which is the metal cap on the yacht’s bow that conceivably could collide with a dock or another boat. Several years ago, Tom retired from the day-to-day operations of the company and turned the operations of the company over to his daughter, Larissa. Because of the dramatic changes in the company, Larissa has approached you to help manage and direct the company’s growth. Specifically, she has asked you to answer the following 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?

Exercise 2: Case 2 – Cash Flows at East Coast Yachts

Action Items:

1. Read the Cash Flows at East Coast Yachts case below.2. Complete the 5-Step Critical Thinking Decision Making Matrix. (Attached below.)3. Write a 1-page business brief of your analysis.4. Attach your completed matrix as an appendix to your business brief.

CASH FLOWS AT EAST COAST YACHTSBecause of the dramatic growth at East Coast Yachts, Larissa decided that the company should be reorganized as a corporation (see our Chapter 1 Closing Case for more detail). Time has passed and, today, the company is publicly traded under the ticker symbol “ECY”.Dan Ervin was recently hired by East Coast Yachts to assist the company with its short- term financial planning and also to evaluate the company’s financial performance. Dan graduated from college five years ago with a finance degree, and he has been employed in the treasury department of a Fortune 500 company since then.The company’s past growth has been some- what hectic, in part due to poor planning. In anticipation of future growth, Larissa has asked Dan to analyze the company’s cash flows. The company’s financial statements are prepared by an outside auditor. Below you will find the most recent income statement and the balance sheets for the past two years.

Larissa has also provided the following information. During the year, the company raised $40 million in new long-term debt and retired $22.8 million in long-term debt. The company also sold $30 million in new stock and repurchased $36 million. The company purchased $60 million in fixed assets, and sold $6,786,000 in fixed assets.Larissa has asked Dan to prepare the financial statement of cash flows and the accounting statement of cash flows. She has also asked you to answer the following questions:1. How would you describe East Coast Yachts’ cash flows? 2. Which cash flows statement more accurately describes the cash flows at the company? 3. In light of your previous answers, comment on Larissa’s expansion plans.

Exercise 3: Case 3 – Financing East Coast Yachts Expansion Plan

Action Items:1. Read the Financing East Coast Yachts Expansion Plan case below2. Complete the 5-Step Critical Thinking Decision Making Matrix. (Attached below.)3. Write a 1-page business brief of your analysis.4. Attach your completed matrix as an appendix to your business brief.

FINANCING EAST COAST YACHTS’ EXPANSION PLANS WITH A BOND ISSUE

After Dan’s EFN analysis for East Coast Yachts (see the Closing Case in Chapter 3), Larissa has decided to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $40 million in new 20-year bonds to finance new construction. Dan has entered into discussions with Renata Harper, an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts should consider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, he is uncertain as to the costs and benefits of some of them, so he isn’t clear on how each feature would affect the coupon rate of the bond issue.

1. You are Renata’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.a. The security of the bond, that is, whether or not the bond has collateral. b. The seniority of the bond. c. The presence of a sinking fund. d. A call provision with specified call dates and call prices.e. A deferred call accompanying the above call provision.f. A make-whole call provision.g. Any positive covenants. Also, discuss several possible positive covenants East Coast Yachts might consider.h. Any negative covenants. Also, discuss several possible negative covenants East Coast Yachts might consider.i. A conversion feature (note that East Coast Yachts is not a publicly traded company). j.

A floating rate coupon.Dan is also considering whether to issue coupon bearing bonds or zero coupon bonds. The YTM on either bond issue will be 6.5 percent. The coupon bond would have a 6.5 percent coupon rate. The company’s tax rate is 35 percent.2. How many of the coupon bonds must East Coast Yachts issue to raise the $40 million? How many of the zeroes must it issue?3. In 20 years, what will be the principal repayment due if East Coast Yachts issues the coupon bonds? What if it issues the zeroes? 4. What are the company’s considerations in issuing a coupon bond compared to a zero coupon bond? 5. Suppose East Coast Yachts issues the coupon bonds with a make-whole call provision. The make-whole call rate is the Treasury rate plus .40 percent. If East Coast calls the bonds in 7 years when the Treasury rate is 5.6 percent, what is the call price of the bond? What if it is 9.1 percent? 6. Are investors really made whole with a make-whole call provision? 7. After considering all the relevant factors, would you recommend a zero coupon issue or a regu- lar coupon issue? Why? Would you recommend an ordinary call feature or a make-whole call feature? Why?

Exercise 4: Case 4– Stock Valuation at Ragan Engines

Action Items:1. Read the Stock Valuation at Ragan Engines case below2. Complete the 5-Step Critical Thinking Decision Making Matrix. (Attached below.)3. Write a 1-page business brief of your analysis.4. Attach your completed matrix as an appendix to your business brief.

STOCK VALUATION AT RAGAN ENGINESLarissa has been talking with the company’s directors about the future of East Coast Yachts. To this point, the company has used outside suppliers for various key components of the company’s yachts, including engines. Larissa has decided that East Coast Yachts should consider the purchase of an engine manufacturer to allow East Coast Yachts to better integrate its supply chain and get more control over engine features. After investigating several possible companies, Larissa feels that the purchase of Ragan Engines, Inc., is a possibility. She has asked Dan Ervin to analyze Ragan’s value.Ragan Engines, Inc., was founded nine years ago by a brother and sister—Carrington and Genevieve Ragan—and has remained a privately owned company. The company manufactures marine engines for a variety of applications. Ragan has experienced rapid growth because of a proprietary technology that increases the fuel efficiency of its engines with very little sacrifice in performance. The company is equally owned by Carrington and Genevieve. The original agreement between the siblings gave each 125,000 shares of stock.

Larissa has asked Dan to determine a value per share of Ragan stock. To accomplish this, Dan has gathered the following information about some of Ragan’s competitors that are publicly traded:

Nautilus Marine Engines’ negative earnings per share (EPS) were the result of an accounting write-off last year. Without the write-off, EPS for the company would have been $1.85. Last year, Ragan had an EPS of $4.20 and paid a dividend to Carrington and Genevieve of $157,500

each. The company also had a return on equity of 20 percent. Larissa tells Dan that a required return for Ragan of 16 percent is appropriate.1. Assuming the company continues its current growth rate, what is the value per share of the company’s stock?2. Dan has examined the company’s financial statements, as well as examining those of its competitors. Although Ragan currently has a technological advantage, Dan’s research indicates that Ragan’s competitors are investigating other methods to improve efficiency. Given this, Dan believes that Ragan’s technological advantage will last only for the next five years. After that period, the company’s growth will likely slow to the industry average. Additionally, Dan believes that the required return the company uses is too high. He believes the industry average required return is more appropriate. Under Dan’s assumptions, what is the estimated stock price?3. What is the industry average price-earnings ratio? What is Ragan’s price-earnings ratio? Comment on any differences and explain why they may exist.4. Assume the company’s growth rate declines to the industry average after five years. What percentage of the stock’s value is attributable to growth opportunities?5. Assume the company’s growth rate slows to the industry average in five years. What future return on equity does this imply?6. Carrington and Genevieve are not sure if they should sell the company. If they do not sell the company outright to East Coast Yachts, they would like to try and increase the value of the company’s stock. In this case, they want to retain control of the company and do not want to sell stock to outside investors. They also feel that the company’s debt is at a manageable level and do not want to borrow more money. What steps can they take to try and increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price?

Exercise 5: Concept Questions

Action Items1. Complete the following problems:

a. Chapter 3 – Concept Question 5b. Chapter 4 – Concept Question 3

2. Show all calculations as needed to answer the questions.3. Compile your answers in a Word document.

Submission Instructions:Submit your Word document to the class Drop Box via the Drop Box app under the heading, “Other.” Your professor will inform you when the assignment is due.

Note: Even though you are submitting all exercises to the same location, they will appear as different revisions under “Other.”

Chapter 3 – Concept Question 5

EFN and Growth RateBroslofski Co. maintains a positive retention ratio and keeps its debt- equity ratio constant every year. When sales grow by 20 percent, the firm has a negative projected EFN. What does this tell you about the firm’s sustainable growth rate? Do you know, with certainty, if the internal growth rate is greater than or less than 20 percent? Why? What happens to the projected EFN if the retention ratio is increased? What if the retention ratio is decreased? What if the retention ratio is zero?

Chapter 4 – Concept Question 3

Present Value Suppose two athletes sign 10-year contracts for $80 million. In one case, we’re told that the $80 million will be paid in 10 equal installments. In the other case, we’re told that the $80 million will be paid in 10 installments, but the installments will increase by 5 percent per year. Who got the better deal?

Exercise 6: Concept Questions

1. Read the closing case for Chapter 19, East Coast Yachts Goes Public, below:

EAST COAST YACHTS GOES PUBLICLarissa Warren and Dan Ervin have been discussing the future of East Coast Yachts. The company has been experiencing fast growth, and the future looks like clear sailing. However, the fast growth means that the company’s growth can no longer be funded by internal sources, so Larissa and Dan have decided the time is right to take the company public. To this end, they have entered into discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Renata Harper, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have helped numerous small companies in the IPO process, so Larissa and Dan feel confident with this choice.Renata begins by telling Larissa and Dan about the process. Although Crowe & Mallard charged an underwriter fee of 4 percent on the bond offering, the underwriter fee is 7 percent on all initial stock offerings of the size of East Coast Yachts’ initial offering. Renata tells Larissa and Dan that the company can expect to pay about $1,500,000 in legal fees and expenses, $15,000 in SEC registration fees, and $20,000 in other filing fees. Additionally, to be listed on the NASDAQ, the company must pay $100,000. There are also transfer agent fees of $8,500 and engraving expenses of $525,000. The company should also expect to pay $75,000 for other expenses associated with the IPO.

Finally, Renata tells Larissa and Dan that to file with the SEC, the company must provide three years’ worth of audited financial statements. She is unsure of the costs of the audit. Dan tells Renata that the company provides audited financial statements as part of its bond indenture, and the company pays $300,000 per year for the outside auditor.1. At the end of the discussion Dan asks Renata about the Dutch auction IPO process. What are the differences in the expenses to East Coast Yachts if it uses a Dutch auction IPO versus a traditional IPO? Should the company go public with a Dutch auction or use a traditional underwritten offering?2. During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that he feels the company should raise $60 million. However, Larissa points out that if the company needs more cash soon, a secondary offering close to the IPO would be potentially problematic. Instead, she suggests that the company should raise $90 million in the IPO. How can we calculate the optimal size of the IPO? What are the advantages and disadvantages of increasing the size of the IPO to $90 million?3. After deliberation, Larissa and Dan have decided that the company should use a firm commitment offering with Crowe & Mallard as the lead underwriter. The IPO will be for $70 million. Ignoring underpricing, how much will the IPO cost the company as a percentage of the funds received?4. Many of the employees of East Coast Yachts have shares of stock in the company because of an existing employee stock purchase plan. To sell the stock, the employees can tender their shares to be sold in the IPO at the offering price, or the employees can retain their stock and sell it in the secondary market after East Coast Yachts goes public (once the 180-day lockup period expires). Larissa asks you to advise the employees about which option is best. What would you suggest to the employees?

2. Review the “Goes Public worksheet” enclosed below

3. Read the closing case for Chapter 20, East Coast Yachts Goes International, below:

EAST COAST YACHTS GOES INTERNATIONALLarissa Warren, the owner of East Coast Yachts, has been in discussions with a yacht dealer in Monaco about selling the company’s yachts in Europe. Jarek Jachowicz, the dealer, wants to add East Coast Yachts to his current retail line. Jarek has told Larissa that he feels the retail sales will be ap- proximately €5 million per month. All sales will be made in euros, and Jarek will retain 5 percent of the retail sales as commission, which will be paid in euros. Since the yachts will be customized to order, the first sales will take place in one month. Jarek will pay East Coast Yachts for the order 90 days after it is filled. This payment schedule will continue for the length of the contract between the two companies.

Larissa is confident the company can handle the extra volume with its existing facilities, but she is unsure about any potential financial risks of selling its yachts in Europe. In her discussion with Jarek, she found that the current exchange rate is $0.73/€. At this exchange rate, the company would spend 70 percent of the sales income on production costs. This number does not reflect the sales commission to be paid to Jarek.Larissa has decided to ask Dan Ervin, the company’s financial analyst, to prepare an analysis of the proposed international sales. Specifically, she asks Dan to answer the following questions:1. What are the pros and cons of the international sales plan? What additional risks will the company face?2. What happens to the company’s profits if the dollar strengthens? What if the dollar weakens?3. Ignoring taxes, what are East Coast Yachts’ projected gains or losses from this proposed arrangement at the current exchange rate of $0.73 €? What happens to profits if the exchange rate changes to $0.80 €? At what exchange rate will the company break even?4. How could the company hedge its exchange rate risk? What are the implications for this approach?5. Taking all factors into account, should the company pursue international sales further? Why or why not?

4. Review the “Goes International worksheet” enclosed below

5. Select ONE question from each worksheet and provide your response to those two questions.

5-Step Critical Thinking Decision-Making Process Matrix

Step 1: Identify the problem(s) and uncertainties.What exactly is the problem…(Study the problem to clarify what you need to know to solve it. Distinguish problems over which you have some control from problems over which you have no control. Pay special attention to controversial issues in which it is essential to consider multiple points of view.)

The problem is this …(Write out the problem clearly and precisely, with details. Write the problem in different ways until you get it perfectly clear in your mind.)

This is an important problem because…

(Remember in business, a problem is important if it affects the bottom line. So how does this problem affect the bottom line (net income).

The key question(s) that needs to be answered to solve this problem is…(Every problem has questions connected to it. Here we want you to write out the most important question(s) you need to answer to solve the problem. State it clearly and precisely. Being specific is very important.)

Step 2: Obtain information. The following information is needed to answer this question…(Here you are looking for the facts and/or data that help you solve the problem. Actively seek the information most relevant to the question. Include in that information options for action, both short-term and long-term. Recognize limitations in the terms of resources such as money, time, and people.)

Some important assumptions I am using in my thinking are…(Figure out what you are taking for granted. Make sure these assumptions are reasonable. Watch out for self – serving or unjustified assumptions.)

The points of view relevant to this problem belong to…(Who are your stakeholders? Determine whether the stakeholder’s point of view is relevant.)

Note: Remember to view the information you have obtained for potential bias. This is from the perspective of your own bias to the research and the bias of the authors who compiled the data and the research you gathered. In other words, do not discount the importance of other’s data because of your own bias(is).

Step 3: Make predictions about the future. If this problem gets solved, some important implications are…(Evaluate options, taking into account the advantages and disadvantages of possible decisions before acting. What consequences are likely to follow from this or that decision?)

If this problem does not get solved, some important implications are…(Evaluate options, taking into account the advantages and disadvantages of possible decisions before acting. What consequences are likely to follow from this or that decision?)

The potential alternative solutions to solve the problem are…(If the problem involves multiple conflicting points of view, you will have to assess which solution is the best.)

Note: if the problem is one-dimensional, there may be just one correct solution.

Step 4: Make decisions by choosing among alternatives. What is the best solution and why…(After following the process above, I think the best solution to the problem is… Defend your recommendation.)

Step 5: Implement the decision, evaluate performance, and learn.In business, the fifth step in the decision making process is implementation. In the MBA program, most times you will end with Step 4 since you will not have the opportunity to implement. You may be asked to develop an implementation plan and recommend how you will evaluate performance in some assignments.