Week 4 Case Study

Week 4 Case Study.

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Case Study

XYZ Company is a reputable manufacturer of various especially electronic items. Jay Carter, a recent MBA graduate, has been hired by the company in its finance department.

On of the major revenue-producing items manufactured by the XYZ is smartphone.The company currently has one smartphone in the market and sells has been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models.

The company can manufacture the new smartphone for $300 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 unit per year for the next five years, respectively.

The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $31 million and will be depreciated on a seven-year MACRS schedule (Use Table A-1 below). It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smartphones will be one time at $5,000,000 at the beginning of the project (time zero).XYZ has a 35% corporate tax rate and required return of 12%.

Jay was asked to prepare a report that answer the following questions:

Part 1- (40 Points)

  1. What is the project NPV?
  2. What is the Project IRR?
  3. What is the payback period of the project?
  4. What is profitability index of the project?
  5. How sensitive is the NPV to change in the price of the new smartphone (assume that the price goes done to $370)?
  6. How sensitive is the NPV to change in the quantity sold (assume that quantity reduce by 10%)?

Part 2- (25 Points)

  1. What is a break-even (quantity)?
  2. If the total interest payment be $150,000, what are the degrees of operating and financial leverage?

Part 3- (25 Points)

Assume that the company has the following capital structure:



Preferred stock


Common stock


What will be the cost of capital if the company decide to raise the needed capital proportionally and with following costs? Please use the following information to calculate the weighted cost of capital:

  1. Bond:

A 30-year bond with a face value of $1000 and coupon interest rate of 13% and floatation cost of $20 (Tax is 35%)

  1. Preferred stock:

Face value of $35 that pays dividend $5 and floatation cost of $2

  1. Common stock:

Market value of $54 with floatation cost of $3.5. Last dividend was $6. The dividend will expect to grow at 7%.

Part 4 (10 Points)

Uses the new cost of capital, calculate the NPV and IRR?

Week 4 Case Study

Week 4 Case Study

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University City Police Department has problems with officer misconduct that may lead to civil lawsuits. When Lou Tennent accepted the position of chief of police for University City, the city manager, Hardy Harr, had him come to his office for a meeting with the mayor.

While in the city manager’s office, Hardy Harr said, “Lou, the reason the city council selected you as chief of police was not only for your exemplar record but you are an outsider. The city council was hopeful that someone with your background and expertise would have some innovative ideas that would help clean up the police department. Unfortunately, the city is looking at several civil lawsuits due to officer misconduct.”

The mayor, Jed I. Night said, “Lou, I do not want to put you on the defensive your first day, but how do you plan on preventing future mishaps?”

Before Lou Tennent could answer the mayor’s question…

Hardy Harr interrupted and shook Lou’s hand and said, “Welcome aboard, let me show you to your office.” Hardy Harr quickly directed Lou out of his office and down the hall. While walking to Lou’s office, the city manager said, “The former chief was asked to step down, which caused the vacancy for the position of chief. After he left three of his officers quit the same day.” Hardy Harr opened the door and said; “Here you go, if you need anything, my office is right down the hall,” and he walked away.”


Using the information from chapter seven in 2 to 3 paragraphs, a minimum of 250 words evaluate and discuss ways to reduce police officer misconduct through better screening methods for new hires. Also, explain how improved training and efficient monitoring, along with disciplinary actions when warranted, decreases officer misconduct. Explain why hiring a college graduate over a candidate without a degree will improve the ethics of policing. Also, explain the importance of effective training, and how this can reduce officer misconduct.

Type all Case Studies in Times New Roman 12pt font – include the header, title page, and reference page; APA formatting is required in this course. Use at least two reference sources – one is your textbook, and one may be taken from the course or the Grantham Library. Additional references may be obtained from the Internet. Citing your references by using parenthetical citations (in-text citations) is a skill that each student must demonstrate in this course.

View your assignment rubric.