Successful and unsuccessful organizations

The success rate of a business organization is determined by the level of satisfaction it has being able and is still capable of rendering to those who patronize its services or products. It also9 depend on the level of trust the clients or buyers have for the service or product from the organization. This will form the bases whether they will continue to patronize the organization. The quality services and product has always being the reckoning force for successful business organizations.Thus, most successful business organizations have adopted the Total Quality Management (TQM) as a tool for the expansion of their success rate and also curving an edge for themselves over their counterparts in contemporary business world. Total quality is about bringing about a fundamental culture change within an organization. The foundation of the new culture has to be faith- that there is a better way of doing things, and that we are really fully committed to it.According to KPMG (2005), â€Å"T otal quality means adopting a customer- oriented business strategy. † This write- up tends to be base on Hilton International as a case stu7dy. Here, the organization operations in the past, present will be studied to see whether it will be successful or not in the next five years to come. HILTON INTERNATIONAL ORGANISATION Hilton International organization is a name to be reckoned with when it comes to hostel industry world over.It has spread its tentacles to developing programmes such as esprit and Hilton University used in training its manpower. The organization is a Multi- International Corporation. Hilton International (HI) owns the right to the Hilton brand name throughout the world, with the exception of the USA, where the Hilton brand is owned and managed by Hilton Hotels Corporation (HHC). The Hilton International operates 403 hotels, with some 261 branded Hilton and 142 under the mid- market Scandic brand.The Hilton International and the North American Hilton Hotel Co rporation has a global alliance which extends the number of hotels operated by both companies worldwide to over 2,700- over 500 of which are branded Hilton. Also, both organizations share responsibility for the Conrad brand which includes 17 hotels in 12 countries (national business awards, 2005). Hilton International started its operation in hotel business in postwar cities, with its modest services of offering a clean environment, air- conditioned respite and a cheeseburger.The Hilton hotels were designed for political impact during this time. The hotels were seen as â€Å"little America†, where businessmen and tourists in Europe and the Middle East could retreat from the disturbingly alien into the comfortable services provided by the Hilton hotels. These same features lent the Hilton a utopian aura, for the economically exhausted local population where a space of luxury and promise which realized permanently and prominently, the new and powerful presence of the United Sta tes (Wharton, 2001)The Hilton International built 16 luxury hotels abroad between 1953 and 1966. â€Å"All were planned according to the Hilton programme and styled as ‘corporate modern’- the same form that distinguished the American embassies and consulates proliferating in the period† (ibid). The Hilton was the first significant modern structure, introducing a striking visual contrast to the vernacular fabrics of places such as Istanbul, Cairo, Athens and Jerusalem. The new architecture impact was amplified by the hotel’s unprecedented siting and scale.As already stated, the ideological base of the creation of Hilton International was not only for profit maximization, but also for political considerations. According to Conrad Hilton, â€Å"Hilton International Hotels were constructed not only to earn Hilton shareholders a profit, but also to make a political impact on host countries; an integral part of my dream was to show the countries most exposed to communism the other side of the coin†¦. the fruits of the free world† (ibid). Hence, the American government had assisted the corporation in no small measure in expanding its base internationally.The capital for the construction of the earlier Hiltons was commonly provided not by the corporation itself, but by institutions in the host countries, with occasional subsidies from the American Economic Co-operation Administration with the support of the US Department of state. Hilton envisioned a global peace where universal capitalism reign. The consistent modernity of the original Hiltons has made it lost its authority and bears no utopian meaning. This has to do with the remodeling of Hilton International in order to make it remain fashionable.THE ORGANIZATION’S STRATEGY AND PRESENT STANDING. The Hilton international is recognized presently as the world best known hotel. It triumphed at the prestigious UK National Business Awards for a second year by winning the cov eted ‘Broad-system Customer Focus Award 2005’. Previous year the organization won the Best Marketing Strategy Award. (National business awards, 2005). The Hilton International has operated a business strategy that makes its customers to have the best quality of service. The organization embrace a creative marketing agency, campaign works.This has supported Hilton’s new brand strategy. The strategy first embraced industry and customer research. Innovation Hubs were set up to turn lifestyle analysis and research into a contemporary hotel experience and conventional thinking was challenged which contributed to the creation of the new customer brand promise. The next phase saw the development of innovative internal and external marketi9ng tools that communicated and delivered the brand strategy throughout the organization and to the customer.The embraced strategy of Hilton International has led to its outstanding success with significant commercial returns. Hilton is now the number one hotel brand in every global market with higher guest satisfaction, improved team member satisfaction and increased financial perfo4rmance (ibid). The Hilton International is expanding its manpower knowledge through its Hilton University. Currently, there are 8000 team members, team leaders, departmental managers and general managers in 70 countries in the Hilton University.The university is recognized as a world standard for management development in the hospitality industry. It has a primary focus of a web- based delivery of core management and skill development with the goal of maintaining world-class customer service throughout the Hilton International organization. The Hilton International sees it as a challenge to increase and broaden the reach of the university to serve even more emp0loyees worldwide, to increase the sophistication of learning activities it offers and to more directly link learning and skills development with the company’s business r esults.The Sum Total learner management system is aimed at developing more in-depth, blended learning programs, incorporating employee competencies by job role and function, and aligning them with specific content and business goals. (elearnity. com, 2004) According to John Guthrie, head of International management development at Hilton International, ‘what sets Hilton apart is the immense pride we take in the standards of service we deliver to all our guests. Sum-Total will help us measure the effectiveness of certain training programs- for example in e-commerce and reservations – in increasing customer satisfaction†(ibid)In year 2000, Hilton International unveiled a plan to double the speed at which it opens hotels around the world. The shares of the organization enjoyed a massive 40 per cent rise since Hilton announced plans to expand Ladbrokes, into internet betting. The online betting becomes interesting to investors, even though its hotel business accounts f or more than two thirds of the group’s profits. (Lindsay City, 2000) The present crave for internet betting has made the organization take its turn in partaking in the business.Turnover of the Hilton in 2000 slipped to 4. 23 billion pounds from 4. 68 billion pounds, mostly as a result of selling off the Corals betting shop chain. The hotel division, bolstered by Stakis, saw profits rise from 181 million pounds to 264 million pounds. In year 2003, the Hilton International sees the increase in its revenue. Hilton reported a pretax profit before exceptional and goodwill for the first half, of 110. 5 million pounds, down from 130 million pounds the previous year.Hilton plans to open 17 new hotels in 2003, with most of them incorporating either management contracts or franchises, and will continue to open around 20 each year going forward. HILTON INTERNATIONAL POTENTIELS FOR SUCCESS OVER THE NEXT FIVE YEARS. The historical and present operations of the Hilton International have sh own that the organization strategy is a strong base for its success in years to come. Total Quality Management as a management tool is used by the organization to continue to win its customers’ patronage.The strategy sees that customers are given the best standard quality of services. This business strategy has made the Hilton International to win the UK National Business awards for 2004 and 2005. The Hilton Business strategy, as discussed earlier on, has a creative marketing agency, campaign works which help in supporting industry and customer research, innovative internal and external marketing tools that communicate and delivers brand strategy throughout the organization and to the customer. This is in practice in the organization.Also, the divers and expanding business operations of the Hilton International would make the organization to continue to succeed. Even, if one or more business unit of the Multi Corporation experiences a d own ebbs in its operational level, othe r chains and units that is successful would keep the organization going. As already discussed the Hilton International operates a university where its manpower are trained and equipped with the professional skill in delivering standard services to its customers.In this instance, the practice of Strategic Human Resource Management is put in place, where the workforce of the organization are integrated into the strategic operation of the corporation, in order to attain the organization’s objectives and long term goals. This practice tends to bring the achievement of best results, and thereby making the Hilton International organization to succeed over the next five years to come and more.

Case Solutions for Corporate Finance Ross, Westerfield, and Jaffe 9th Edition

Case Solutions Corporate Finance Ross, Westerfield, and Jaffe 9th edition CHAPTER 2 CASH FLOWS AT WARF COMPUTERS The operating cash flow for the company is: (NOTE: All numbers are in thousands of dollars) OCF = EBIT + Depreciation – Current taxes OCF = $1,332 + 159 – 386 OCF = $1,105 To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was: | |Capital spending | | |   |Ending net fixed assets |$2,280 | |   |– Beginning net fixed assets |1,792 | |   |+ Depreciation | 159 | |   | Net capital spending |$ 647 | And the change in net working capital was: |   |Change in net working capital | |   |Ending NWC |$728 | |   |– Beginning NWC | 586 | |   | Change in NWC |$142 | So, the cash flow from assets was:    |Cash flow from assets | | |   |Operating cash flow |$1,105 | |   |– Net capital spending |647 | |   |– Change in NWC | 142 | |   | Cash flow from assets |$316 | The cash flow to creditors was: |   |Cash flow to creditors |   | |   |Interest paid | $95 | |   |– Net New Borrowing | 20 | |   | Cash flow to Creditors | $75 | The cash flow to stockholders was:    |Cash flow to stockholders |   | |   |Dividends paid | $212 | |   |– Net new equity raised | –29 | |   | Cash flow to Stockholders | $241 | The accounting cash flow statement of cash flows for the year was:    |Statement of Cash Flows | |   |Operations | | |   |Net income |$742 | |   |Depreciation |159 | |   |Deferred taxes |109 | |   |Changes in assets and liabilities | | |   | Accounts receivable |(31) | |   | Inventories |14 |   | Accounts payable |17 | |   | Accrued expenses |(99) | |   | Other |(9) | |   |Total cash flow from operations |$902 | |   |   | | |   |Investing activities | | |   | Acquisition of fixed assets |$(786) | |   | Sale of fixed assets |139 | |   |Total cash flow from investing acti vities |$(547) | |   |   | | |   |Financing activities | | |   | Retirement of debt |$(98) | |   | Proceeds of long-term debt |118 | |   | Notes payable |5 | |   | Dividends |(212) | |   | Repurchase of stock |(40) | |   | Proceeds from new stock issues |11 | |   |Total cash flow from financing activities |$(216) | |   |   | | |   |Change in cash (on balance sheet) |$39 | Answers to questions 1. The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from operations and a positive cash flow from assets. The firm invested $142 in new net working capital and $647 in new fixed assets. The firm was able to return $241 to its stockholders and $75 to creditors. 2. The financial cash flows present a more accurate picture of the company since it accurately reflects interest cash flows as a financing decision rather than an operating decision. 3. The expansion plans look like they are probably a good idea. The company was able to return a significant amount of cash to its shareholders during the year, but a better use of these cash flows may have been to retain them for the expansion. This decision will be discussed in more detail later in the book. CHAPTER 3 RATIOS AND FINANCIAL PLANNING AT EAST COAST YACHTS 1. The calculations for the ratios listed are: Current ratio = $14,651,000 / $19,539,000 Current ratio = 0. 75 times Quick ratio = ($14,651,000 – 6,136,000) / $19,539,000 Quick ratio = 0. 44 times Total asset turnover = $167,310,000 / $108,615,000 Total asset turnover = 1. 54 times Inventory turnover = $117,910,000 / $6,136,000 Inventory turnover = 19. 22 times Receivables turnover = $167,310,000 / $5,473,000 Receivables turnover = 30. 57 times Total debt ratio = ($108,615,000 – 55,341,000) / $108,615,000 Total debt ratio = 0. 49 times Debt-equity ratio = ($19,539,000 + 33,735,000) / $55,341,000 Debt-equity ratio = 0. 96 times Equity multiplier = $108,615,000 / $55,341,000 Equity multiplier = 1. 96 times Interest coverage = $23,946,000 / $3,009,000 Interest coverage = 7. 96 times Profit margin = $12,562,200 / $167,310,000 Profit margin = 7. 51% Return on assets = $12,562,200 / $108,615,000 Return on assets = 11. 57% Return on equity = $12,562,000 / $55,341,000 Return on equity = 22. 70% 2. Regarding the liquidity ratios, East Coast Yachts current ratio is below the median industry ratio. This implies the company has less liquidity than the industry in general. However, the current ratio is above the lower quartile, so there are companies in the industry with lower liquidity than East Coast Yachts. The company may have more predictable cash flows, or more access to short-term borrowing. The turnover ratios are all higher than the industry median; in fact, all three turnover ratios are above the upper quartile. This may mean that East Coast Yachts is more efficient than the industry in using its assets to generate sales. The financial leverage ratios are all below the industry median, but above the lower quartile. East Coast Yachts generally has less debt than comparable companies, but is still within the normal range. The profit margin for the company is about the same as the industry median, the ROA is slightly higher than the industry median, and the ROE is well above the industry median. East Coast Yachts seems to be performing well in the profitability area. Overall, East Coast Yachts’ performance seems good, although the liquidity ratios indicate that a closer look may be needed in this area. Below is a list of possible reasons it may be good or bad that each ratio is higher or lower than the industry. Note that the list is not exhaustive, but merely one possible explanation for each ratio. | |Ratio |Good |Bad | | |Current ratio |Better at managing current accounts. |May be having liquidity problems. | | |Quick ratio |Better at managing current accounts. May be having liquidity problems. | | |Total asset turnover |Better at utilizing assets. |Assets may be older and depreciated, requiring | | | | |extensive investment soon. | | |Inventory turnover |Better at inventory management, possibly due to |Could be experiencing inventory shortages. | | | |better procedures. | | | |Receivables turnover |Better at collecting receivables. |May have credit terms that are too strict. | | | |Decreasing receivables turnover may increase | | | | | sales. | | |Total debt ratio |Less debt than industry median means the company|Increasing the amount of debt can increase | | | |is less likely to experience credit problems. |shareholder returns. Especially notice that it | | | | |will increase ROE. | | |Debt-equity ratio |Less debt than industry median means the company|Increasing the amount of debt can increase | | | |is less likely to experience credit problems. |shareholder returns. Especially notice that it | | | | |will increase ROE. | | |Equity multiplier |Less debt than industry median means the company|Increasing the amount of debt can increase | | | |is less likely to experience credit problems. |shareholder returns. Especially notice that it | | | | |will increase ROE. | | |Interest coverage |Less debt than industry median means the company|Increasing the amount of debt can increase | | | |is less likely to experience credit problems. |shareholder returns. Especially notice that it | | | | |will increase ROE. | | |Profit margin |The PM is slightly above the industry median, so|May be able to better control costs. | | | |it is performing better than many peers. | | | |ROA |Company is performing above many of its peers. |Assets may be old and depreciated relative to | | | | |industry. | | |ROE |Company is performing above many of its peers. Profit margin and EM could still be increased, | | | | |which would further increase ROE. | If you created an Inventory to Current liabilities ratio, East Coast Yachts would have a ratio that is lower than the industry median. The current ratio is below the industry median, while the quick ratio is above the industry median. This implies that East Coast Yachts has less inventory to current liabilities than the industry median. Because the cash ratio is lower than the industry median, East Coast Yachts has less inventory than the industry median, but more accounts receivable. 3. To calculate the internal growth rate, we first need to find the ROE and the retention ratio, so: ROE = NI / TE ROE = $12,562,200 / $55,341,000 ROE = . 2270 or 22. 70% b = Addition to RE / NI b = $5,024,800 / $12,562,200 b = 0. 40 or 40% So, the sustainable growth rate is: Sustainable growth rate = (ROE ? b) / [1 – (ROE ? b)] Sustainable growth rate = [0. 2270(. 40)] / [1 – 0. 2270(. 40)] Sustainable growth rate = . 0999 or 9. 99% The sustainable growth rate is the growth rate the company can achieve with no external financing while maintaining a constant debt-equity ratio. At the sustainable growth rate, the pro forma statements next year will be:    |Income statement |   |   |   | |   |Sales |$184,018,615 |   |   |   | |   |COGS |129,685,224 |   |   |   | |   |Other expenses |21,990,725 |   |   |   | |   |Depreciation |5,460,000 |   |   |   | |   |EBIT |$26,882,666 |   |   |   | |   |Interest 3,009,000 |   |   |   | |   |Taxable income |$23,873,666 |   |   |   | |   |Taxes (40%) |9,549,466 |   |   |   | |   |Net income |$14,324,199 |   |   |   | |   |   | |   |   |   | |   |Dividends |$8,594,520 |   |   |   | |   |Add to RE |5,729,680 |   |   |   | |   |Balance sheet | |   |Assets |   |Liabilities & Equity | |   |Current Assets | |   |Current Liabilities | | |   | Cash |$3,345,793 |   | Accounts Payable |$7,106,236 | |   | Accounts rec. 6,019,568 |   | Notes Payable |14,384,050 | |   | Inventory |6,748,779 |   | Total CL |$21,490,286 | |   | Total CA |$16,114,140 |   |   | | |   |   | |   |Long-term debt |$33,735,000 | |   | | |   |   | | |   | | |   |Shareholder Equity | | |   | |   | Common stock |$5,200,000 | |   |Fixed assets | |   | Retained earnings |55,870,680 | |   | Net PP&E |$103,347,828 |   | Total Equity |$61,070,680 | |   |   | |   |   | | |   |Total Assets |$ 119,461,968 |   |Total L&E |$116,295,966 | So, the EFN is: EFN = Total assets – Total liabilities and equity EFN = $119,461,968 – 116,295,966 EFN = $3,166,002 The ratios with these pro forma statements are: Current ratio = $16,114,140 / $21,490,286 Current ratio = 0. 75 times Quick ratio = ($16,114,140 – 6,748,779) / $21,490,286 Quick ratio = 0. 44 times Total asset turnover = $184,018,615 / $119,461,968 Total asset turnover = 1. 54 times Inventory turnover = $129,685,224 / $6,748,779 Inventory turnover = 19. 22 times Receivables turnover = $184,018,615 / $6,019,568 Receivables turnover = 30. 57 times Total debt ratio = ($116,295,966 – 61,070,680) / $116,295,966 Total debt ratio = 0. 49 times Debt-equity ratio = ($21,490,286 + 33,735,000) / $61,070,680 Debt-equity ratio = 0. 90 times Equity multiplier = $119,460,968 / $61,070,680 Equity multiplier = 1. 96 times Interest coverage = $26,882,666 / $3,009,000 Interest coverage = 8. 93 times Profit margin = $14,324,199 / $184,018,615 Profit margin = 7. 78% Return on assets = $14,324,199 / $119,461,968 Return on assets = 11. 99% Return on equity = $14,324,199 / $61,070,680 Return on equity = 23. 45% The only ratios that changed are the debt ratio, the interest coverage ratio, profit margin, return on assets, and return on equity. The debt ratio changes because long-term debt is assumed to remain fixed in the pro forma statements. The other ratios change slightly because interest and depreciation are also assumed to remain constant as well. 4. Pro forma financial statements for next year at a 20 percent growth rate are: |   |Income statement |   |   |   | |   |Sales |$200,772,000 |   |   |   | |   |COGS |141,492,000 |   |   |   | |   |Other xpenses |23,992,800 |   |   |   | |   |Depreciation |5,460,000 |   |   |   | |   |EBIT |$29,827,200 |   |   |   | |   |Interest |3,009,000 |   |   |   | |   |Taxable income |$26,818,200 |   |   |   | |   |Taxes (40%) |10,727,280 |   |   |   | |   |Net income |$16,090,920 |   |   |   | |   |   | |   |   |   | |   |Dividends |$9,654,552 |   |   |   | |   |Add to RE |6,436,368 |   |   |   |    |Balance sheet | |   |Assets |   |Liabilities & Equity | |   |Curren t Assets | |   |Current Liabilities | | |   | Cash |$3,650,400 |   | Accounts Payable |$7,753,200 | |   | Accounts rec. |6,567,600 |   | Notes Payable |15,693,600 | |   | Inventory |7,363,200 |   | Total CL |$23,446,800 | |   | Total CA |$17,581,200 |   |   | | |   | |   |Long-term debt |$33,735,000 | |   | | |   |   | | |   | | |   |Shareholder Equity | | |   |   | |   | Common stock |$5,200,000 | |   |Fixed assets | |   | Retained earnings |56,577,368 | |   | Net PP&E |$112,756,800 |   | Total Equity |$61,777,368 | |   |   | |   |   | | |   |Total Assets |$130,338,000 |   |Total L&E |$118,959,168 | So, the EFN is: EFN = Total assets – Total liabilities and equity EFN = $130,338,000 – 118,959,168 EFN = $8,753,040 5. Now we are assuming the company can only build in amounts of $30 million. We will assume that the company will go ahead with the fixed asset acquisition. In this case, the pro forma financial stat ement calculation will change slightly. Before, we made the assumption that depreciation increased proportionally with sales, which makes sense if fixed assets increase proportionally with sales. This is not the case now. To estimate the new depreciation charge, we will find the current depreciation as a percentage of fixed assets, then, apply this percentage to the new fixed assets. The depreciation as a percentage of assets this year was: Depreciation percentage = $5,460,000 / $93,964,000 Depreciation percentage = . 0581 or 5. 81% The new level of fixed assets with the $30 million purchase will be: New fixed assets = $93,964,000 + 30,000,000 = $123,964,000 So, the pro forma depreciation as a percentage of sales will be: Pro forma depreciation = . 0581($123,964,000) Pro forma depreciation = $7,203,221 We will use this amount in the pro form income statement. So, the pro forma income statement will be:    |Income statement |   |   |   | |   |Sales |$200,772,000 |   |   |   | |   |COGS |141,492,000 |   |   |   | |   |Other expenses |23,992,800 |   |   |   | |   |Depreciation |7,203,221 |   |   |   | |   |EBIT |$28,083,979 |   |   |   | |   |Interest |3 ,009,000 |   |   |   | |   |Taxable income |$25,074,979 |   |   |   | |   |Taxes (40%) |10,029,992 |   |   |   | |   |Net income |$15,044,988 |   |   |   | |   |   | |   |   |   | |   |Dividends |$9,026,993 |   |   |   | |   |Add to RE |6,017,995 |   |   |   | The pro forma balance sheet will remain the same except for the fixed asset and equity accounts. The fixed asset account will increase by $30 million, rather than the growth rate of sales. |   |Balance sheet | |   |Assets |   |Liabilities & Equity | |   |Current Assets | |   |Current Liabilities | | |   | Cash |$3,650,400 |   | Accounts Payable |$7,753,200 | |   | Accounts rec. 6,567,600 |   | Notes Payable |15,693,600 | |   | Inventory |7,363,200 |   | Total CL |$23,446,800 | |   | Total CA |$17,581,200 |   |   | | |   |   | |   |Long-term debt |$33,735,000 | |   | | |   |   | | |   | | |   |Shareholder Equity | | |   |   | |   | Common stock |$5,200,000 | |   |Fixed assets | |   | Retained earnings |56,158,995 | |   | Net PP&E |$123,964,000 |   | Total Equity |$61,358,995 | |   | |   |   | | |   |Total Assets |$141,545,200 |   |Total L&E |$118,540,795 | So, the EFN is: EFN = Total assets – Total liabilities and equity EFN = $141,545,200 – 118,540,795 EFN = $23,004,405 Since the fixed assets ha ve increased at a faster percentage than sales, the capacity utilization for next year will decrease. CHAPTER 4 THE MBA DECISION 1. Age is obviously an important factor. The younger an individual is, the more time there is for the (hopefully) increased salary to offset the cost of the decision to return to school for an MBA. The cost includes both the explicit costs such as tuition, as well as the opportunity cost of the lost salary. 2. Perhaps the most important nonquantifiable factors would be whether or not he is married and if he has any children. With a spouse and/or children, he may be less inclined to return for an MBA since his family may be less amenable to the time and money constraints imposed by classes. Other factors would include his willingness and desire to pursue an MBA, job satisfaction, and how important the prestige of a job is to him, regardless of the salary. 3. He has three choices: remain at his current job, pursue a Wilton MBA, or pursue a Mt. Perry MBA. In this analysis, room and board costs are irrelevant since presumably they will be the same whether he attends college or keeps his current job. We need to find the aftertax value of each, so: Remain at current job: Aftertax salary = $60,000(1 – . 26) = $44,400 His salary will grow at 3 percent per year, so the present value of his aftertax salary is: PV = C {[1/(r – g)] – [1/(r – g)] ? [(1 + g)/(1 + r)]t} PV = $44,400{[1/(. 065 – . 03)] – [1/(. 065 – . 03)] ? [(1 + . 03)/(1 + . 065)]40} PV = $935,283. 49 Wilton MBA: Costs: The direct costs will occur today and in one year and include tuition, books and supplies, health insurance, and the room and board increase. So the total direct costs are: PV of direct expenses = ($65,000 + 3,000 + 3,000 + 2,000) + ($65,000 + 3,000 + 3,000 + 2,500) / 1. 065 PV of direct expenses = $141,544. 60 The indirect costs are the lost salary, so the value of the indirect costs are: PV of indirect costs (lost salary) = $44,400 / (1. 065) + $44,400(1 + . 03) / (1 + . 065)2 PV of indirect costs (lost salary) = $82,010. 18 The financial benefits are the bonus to be paid in 2 years and the future salary. PV of aftertax bonus paid in 2 years = $20,000(1 – . 31) / 1. 0652 = $12,166. 90 Aftertax salary = $10,000(1 – . 31) = $75,900 His salary will grow at 4 percent per year. We must also remember that he will now only work for 38 years, so the present value of his aftertax salary is: PV = C {[1/(r – g)] – [1/(r – g)] ? [(1 + g)/(1 + r)]t} PV = $75,900{[1/(. 065 – . 04)] – [1/(. 065 – . 04)] ? [(1 + . 04)/(1 + . 065)]38} PV = $1,804,927. 68 Since the first salary payment will be received three years from today, so we need to discount this for two years to find the value today, which will be: PV = $1,804,927. 68 / 1. 0652 PV = $1,591,331. 25 So, the total value of a Wilton MBA is: Value = –$141,544. 60 – 82,010. 18 + 12,166. 90 + 1,591,331. 25 = $1,379,943. 36 Mount Perry MBA: The direct costs will occur today and include tuition, books and supplies, health insurance, and the room and board increase. So the total direct costs are: Total direct costs = $80,000 + 4,500 + 3,000 + 2,000 = $89,500. Note, this is also the PV of the direct costs since they are all paid today. The indirect costs are the lost salary, so the value of the indirect costs are: PV of indirect costs (lost salary) = $44,400 / (1. 065) = $41,690. 14 The financial benefits are the bonus to be paid in 1 year and the future salary. PV of aftertax bonus paid in 1 year = $18,000(1 – . 29) / 1. 065 = $12,000 His aftertax salary at his new job will be: Aftertax salary = $80,000(1 – . 29) = $65,320 His salary will grow at 3. 5 percent per year. We must also remember that he will now only work for 39 years, so the present value of his aftertax salary is: PV = C {[1/(r – g)] – [1/(r – g)] ? [(1 + g)/(1 + r)]t} PV = $65,320{[1/(. 065 – . 035)] – [1/(. 065 – . 035)] ? [(1 + . 035)/(1 + . 065)]35} PV = $1,462,896. 46 Since the first salary payment will be received two years from today, so we need to discount this for one year to find the value today, which will be: PV = $1,462,896. 46 / 1. 065 PV = $1,373,611. 70 So, the total value of a Mount Perry MBA is: Value = –$89,500 – 41,690. 14 + 12,000 + 1,373,611. 70 = $1,254,421. 56 4. He is somewhat correct. Calculating the future value of each decision will result in the option with the highest present value having the highest future value. Thus, a future value analysis will result in the same decision. However, his statement that a future value analysis is the correct method is wrong since a present value analysis will give the correct answer as well. 5. To find the salary offer he would need to make the Wilton MBA as financially attractive as the as the current job, we need to take the PV of his current job, add the costs of attending Wilton, and the PV of the bonus on an aftertax basis. Note, this assumes that the singing bonus is constant. So, the necessary PV to make the Wilton MBA the same as his current job will be: PV = $935,283. 49 + 1414,544. 60 + 82,010. 18 – 12,166. 90 = $1,146,671. 37 This PV will make his current job exactly equal to the Wilton MBA on a financial basis. Since the salary will not start for 3 years, we need to find the value in 2 years so that it is the present value of growing annuity. So: Value in 2 years = $1,146,671. 37(1. 0652) = $1,300,583. 34 Since his salary will still be a growing annuity, the aftertax salary needed is: PV = C {[1/(r – g)] – [1/(r – g)] ? [(1 + g)/(1 + r)]t} $1,300,583. 34 = C {[1/(. 065 – . 04)] – [1/(. 065 – . 04)] ? [(1 + . 04)/(1 + . 065)]38} C = $54,691. 54 This is the aftertax salary. So, the pretax salary must be: Pretax salary = $54,691. 54 / (1 – . 31) = $76,263. 10 6. The cost (interest rate) of the decision depends on the riskiness of the use of funds, not the source of the funds. Therefore, whether he can pay cash or must borrow is irrelevant. This is an important concept which will be discussed further in capital budgeting and the cost of capital in later chapters. CHAPTER 5 BULLOCK GOLD MINING 1. An example spreadsheet is: [pic] 2. Since the NPV of the mine is positive, the company should open the mine. We should note, it may be advantageous to delay the mine opening because of real options, a topic covered in more detail in a later chapter. 3. There are many possible variations on the VBA code to calculate the payback period. Below is a VBA program from http://www. vbaexpress. com/kb/getarticle. php? kb_id=252. Function PAYBACK(invest, finflow) Dim x As Double, v As Double Dim c As Integer, i As Integer x = Abs(invest) i = 1 c = finflow. Count Do x = x – v v = finflow. Cells(i). Value If x = v Then PAYBACK = i Exit Function ElseIf x < v Then P = i – 1 Z = x / v PAYBACK = P + Z Exit Function End If i = i + 1 Loop Until i > c PAYBACK = â€Å"no payback† End Function CHAPTER 6, Case #1 BETHESDA MINING To analyze this project, we must calculate the incremental cash flows generated by the project. Since net working capital is built up ahead of sales, the initial cash flow depends in part on this cash outflow. So, we will begin by calculating sales. Each year, the company will sell 500,000 tons under contract, and the rest on the spot market. The total sales revenue is the price per ton under contract times 500,000 tons, plus the spot market sales times the spot market price. The sales per year will be:    | |Year 1 |Year 2 |Year 3 |Year 4 | |   |Contract |$47,500,000 |$47,500,000 |$47,500,000 |$47,500,000 | |   |Spot |10,800,000 |16,200,000 |20,700,000 |8,100,000 | |   |Total |$58,300,000 |$63,700,000 |$68,200,000 |$55,600,000 | The current aftertax value of the land is an opportunity cost. The initial outlay for net wor king capital is the percentage required net working capital times Year 1 sales, or: Initial net working capital = . 05($58,300,000) = $2,915,000 So, the cash flow today is:    |Equipment |–$85,000,000 | |   |Land |–7,000,000 | |   |NWC |–2,915,000 | |   |Total |–$94,915,000 | Now we can calculate the OCF each year. The OCF is: | | |Year 1 |Year 2 |Year 3 |Year 4 |Year 5 |Year 6 | |   |Sales |$58,300,000 |$63,700,000 |$68,200,000 |$55,600,000 | | | |   |VC |19,220,000 |21,080,000 |22,630,000 |18,290,000 | | | |   |FC |4,300,000 |4,300,000 |4,300,000 |4,300,000 |$2,800,000 |$7,500,000 | |   |Dep. 12,155,000 |20,825,000 |14,875,000 |10,625,000 | | | |   |EBT |$22,625,000 |$17,495,000 |$26,395,000 |$22,385,000 |–$2,800,000 |–$7,500,000 | |   |Tax |8,597,500 |6,648,100 |10,030,100 |8,506,300 |1,064,000 |2,850,000 | |   |NI |$14,027,500 |$10,846,900 |$16,364,900 |$13,878,700 |–$1,736,000 |–$4,650,000 | |   |+ Dep. |12,155,000 |20,825,000 |14,875,000 |10,625,000 |0 |0 | |   |OCF |$26,182,500 |$31,671,900 |$31,239,900 |$24,503,700 |–$1,736,000 |–$4,650,000 | Years 5 and 6 are of particular interest. Year 5 has an expense of $2. 8 million to reclaim the land, and it is the only expense for the year. Taxes that year are a credit, an assumption given in the case. In Year 6, the charitable donation of the land is an expense, again resulting in a tax credit. The land does have an opportunity cost, but no information on the aftertax salvage value of the land is provided. The implicit assumption in this calculation is that the aftertax salvage value of the land in Year 6 is equal to the $7. 5 million charitable expense. Next, we need to calculate the net working capital cash flow each year. NWC is 5 percent of next year’s sales, so the NWC requirement each year is: |   | |Year 1 |Year 2 |Year 3 |Year 4 | |   |Beg. NWC |$2,915,000 |$3,185,000 |$3,410,000 |$2,780,000 | |   |End NWC |3,185,000 |3,410,000 |2,780,000 | | |   |NWC CF |–$270,000 |–$225,000 |$630,000 |$2,780,000 | The last cash flow we need to account for is the salvage value. The fact that the company is keeping the equipment for another project is irrelevant. The aftertax salvage value of the equipment should be used as the cost of equipment for the new project. In other words, the equipment could be sold after this project. Keeping the equipment is an opportunity cost associated with that project. The book value of the equipment is the original cost, minus the accumulated depreciation, or: Book value of equipment = $85,000,000 – 12,155,000 – 20,825,000 – 14,875,000 – 10,625,000 Book value of equipment = $26,520,000 Since the market value of the equipment is $51 million, the equipment is sold at a gain to book value, so the sale will incur the taxes of: Taxes on sale of equipment = ($26,520,000 – 51,000,000)(. 38) = –$9,302,400 And the aftertax salvage value of the equipment is: Aftertax salvage value = $51,000,000 – 9,302,400 Aftertax salvage value = $41,697,600 So, the net cash flows each year, including the operating cash flow, net working capital, and aftertax salvage value, are: |   |Time |Cash flow | |   |0 |–$94,915,000 | |   |1 |25,912,500 | |   |2 |31,446,900 |    |3 |31,869,900 | |   |4 |68,981,300 | |   |5 |–1,736,000 | |   |6 |–4,650,000 | So, the capital budgeting analysis for the project is: Payback period = 3 + $5,685,700/$68,981,300 Payback period = 3. 08 years Profitability index = ($25,912,500/1. 12 + $31,446,900/1. 122 + $31,869,900/1. 123 + $68,981,300/1. 124 – $1,736,000/1. 125 – $4,650,000/1. 126) / $94 ,915,000 Profitability index = 1. 174 To calculate the AAR, we divide the average net income by the average book value. Since the cash flows from the project extend for two years past the end of mining operation, we will include an average book value of zero for the last two years. So, the AAR is: AAR = [($14,027,500 + 10,846,900 + 16,364,900 + 13,878,000 – 1,736,000 – 4,650,000) / 6] / [(85,000,000 + 72,845,000 + 52,020,000 + 37,145,000 + 26,520,000 + 0) / 7] AAR = . 1485 or 14. 85% The equation for IRR is: 0 = –$94,915,000 + $25,912,500/(1 + IRR) + $31,446,900/(1 + IRR)2 + $31,869,900/(1 + IRR)3 + $68,981,300/(1 + IRR)4 – $1,736,000/(1 + IRR)5 – $4,650,000/(1 + IRR)6 Using a spreadsheet or financial calculator, the IRRs for the project are: IRR = 19. 1%, –74. 64% MIRR = 12. 94% NPV = –$94,915,000 + $25,912,500/1. 12 + $31,446,900/1. 122 + $31,869,900/1. 123 + $68,981,300/1. 124 – $1,736,000/1. 125 – $4,650,000/1. 126 NPV = $16,472,777. 67 In the final analysis, the company should accept the project since the NPV is positive. CHAPTER 6, C ase #2 GOODWEEK TIRES, INC. The cash flow to start the project is the $120 million equipment cost and the $11 million required for net working capital, yielding a total cash outflow today of $131 million. The research and development costs and the marketing test are sunk costs. We can calculate the future cash flows on a nominal basis or a real basis. Since the depreciation is given in nominal values, we will calculate the cash flows in nominal terms. The same solution can be found using real cash flows. Since the price and variable costs increase by 1 percent, and the inflation rate is 3. 5 percent, the nominal growth in both variables is: (1 + R) = (1 + r)(1 + h) R = [(1. 01)(1. 0325)] – 1 R = . 0428 or 4. 28% To analyze this project, we must calculate the incremental cash flows generated by the project. We will calculate the real cash flows, although using nominal cash flows will result in the same NPV. The sales of new automobiles will grow by 2. 5 percent per year, and there are four tires per car. Since the company expects to capture 11 percent of the market, the number of tires sold in the OEM market will be: |   | |Year 1 |Year 2 |Year 3 |Year 4 | | |Automobiles sold |5,600,000 |5,740,000 |5,883,500 |6,030,588 | |   |Tires for automobiles sold |22,400,000 |22,960,000 |23,534,000 |24,122,350 | |   |SuperTread tires sold |2,464,000 |2,525,600 |2,588,740 |2,653,459 | The number of tires sold in the replacement market will grow at 2 percent per year, and Goodweek will capture 8 percent of the market. So, the number of tires sold in the replacement market will be: |   | |Year 1 |Year 2 |Year 3 |Year 4 | |   |Total tires sold in market |14,000,000 |14,280,000 |14,565,600 |14,856,912 | |   |SuperTread tires sold |1,120,000 |1,142,400 |1,165,248 |1,188,553 | The tires will be sold in each market at a different price. The price will increase each year at the inflation rate, so the price each year will be:    | |Year 1 |Year 2 |Year 3 |Year 4 | |   |OEM |$38. 00 |$39. 24 |$40. 51 |$41. 83 | |   |Replacement |$59. 00 |$60. 92 |$62. 90 |$64. 94 | Multiplying the number of tires sold in each market by the respective price in that market, the revenue each year will be: |   | |Year 1 |Year 2 |Year 3 |Year 4 | |   |OEM market |$93,632,000 |$99,091,916 $104,870,213 |$110,985,458 | |   |Replacement market |66,080,000 |69,592,152 |73,290,975 |7 7,186,390 | |   |Total |$159,712,000 |$168,684,068 |$178,161,188 |$188,171,848 | Now we can calculate the incremental cash flows each year. We will calculate the nominal cash flows. Doing so, we find: |   | |Year 1 |Year 2 |Year 3 |Year 4 | |   |Revenue |$159,712,000 |$168,684,068 |$178,161,188 |$188,171,848 | |   |Variable costs |78,848,000 |84,151,806 |85,026,717 |87,024,208 | |   |Mkt. nd general costs |26,000,000 |26,845,000 |27,717,463 |28,618,280 | |   |Depreciation |20,020,000 |34,300,000 |24,500,000 |17,500,000 | |   |EBT |$34,844,000 |$23,387,262 |$40,917,008 |$55,029,360 | |   |Tax |13,937,600 |9,354,905 |16,366,803 |22,011,744 | |   |Net income |$20,906,400 |$14,032,357 |$24,550,205 |$33,017,616 | |   |OCF |$40,926,400 |$48,332,357 |$49,050,205 |$50,517,616 | Net working capital is a percentage of sales, so the net working capital requirements will change every year. The net working capital cash flows will be:    | |Year 1 |Year 2 |Year 3 |Year 4 | |    |Beginning |$9,000,000 |$23,956,800 |$25,302,610 |$26,724,178 | |   |Ending |23,956,800 |25,302,610 |26,724,178 |0 | |   |NWC cash flow |–$14,956,800 |–$1,345,810 |–$1,421,568 |$26,724,178 | The book value of the equipment is the original cost minus the accumulated depreciation. The book value of equipment each year will be:    |   |Year 1 |Year 2 |Year 3 |Year 4 | |   |Book value of equipment |$119,980,000 |$85,680,000 |$61,180,000 |$43,680,000 | Since the market value of the equipment is $54 million, the equipment is sold at a gain to book value, so the sale will incur the taxes of: Taxes on sale of equipment = ($46,680,000 – 54,000,000)(. 40) = $4,128,000 And the aftertax salvage value of the equipment is: Aftertax salvage value = $54,000,000 – 4,128,000 Aftertax salvage value = $89,872,000 So, the net cash flows each year, including the operating cash flow, net working capital, and aftertax salvage value, are:    |Time |Cash fl ow | | |   |0 |–$149,000,000 | | |   |1 |25,969,600 | | |   |2 |49,986,547 | | |   |3 |47,628,637 | | |   |4 |127,113,794 | | So, the capital budgeting analysis for the project is: Payback period = 3 + $28,415,213 / $127,113,794 Payback period = 3. 22 years The discounted cash flows are:    |Time |Discounted cash flow | |   |0 |–$149,000,000 | |   |1 |22,406,903 | |   |2 |34,978,941 | |   |3 |30,592,703 | |   |4 |70,446,422 | Discounted payback period = 3 + $61,021,454 / $70,446,422 Discounted payback period = 3. 27 years The required return for the project is in nominal terms, so the profitability index is: Profitability index = ($25,969,600/1. 15 + $49,986,547/1. 152 + $47,628,637/1. 153 + $96,714,733/1. 154) / $149,000,000 Profitability index = 1. 63 The equation for IRR is: 0 = –$149,000,000 + $25,969,600/(1 + IRR) + $49,986,547/(1 + IRR)2 + $47,628,637/(1 + IRR)3 + $96,714,733/(1 + IRR)4 Using a spreadsheet or financial calculator, the IRR for the project is: IRR = 18. 35% AAR = [(20,926,400 + 14,032,357 + 24,550,205 + 33,017,606)/4] / [($140,000,000 + 119,980,000 + 85,860,000 + 61,1180,000 + 43,680,000)/5} AAR = 25. 67% NPV = –$149,000,000 + $25,696,600/(1. 15) + $46,986,547/(1. 15)2 + $47,628,637/(1. 15)3 + $127,113,794/(1. 15)4 NPV = $9,424,967. 81 In the final analysis, the company should accept the project since the NPV is positive. CHAPTER 7 BUNYAN LUMBER, LLC The company is faced with the option of when to harvest the lumber. Whatever harvest cycle the company chooses, it will follow that cycle in perpetuity. Since the forest was planted 20 years ago, the options available in the case are 40-, 45-, 50, and 55-year harvest cycles. No matter what harvest cycle the company chooses, it will always thin the timber 20 years after harvests and replants. The cash flows will grow at the inflation rate, so we can use the real or nominal cash flows. In this case, it is simpler to use real cash flows, although nominal cash flows would yield the same result. So, the real required return on the project is: (1 + R) = (1 + r)(1 + h) 1. 10 = (1 + r)(1. 37) r = . 0608 or 6. 08% The conservation funds are expected to grow at a slower rate than inflation, so the real return for the conservation fund will be: (1 + R) = (1 + r)(1 + h) 1. 10 = (1 + r)(1. 032) r = . 0659 or 6. 59% The company will thin the forest today regardless of the harvest schedule, so this first thinning is not an incremental cash flow, but future thinning is part of the analysis since the thinning schedule is determined by the harvest schedule. The cash flow from the thinning process is: Cash flow from thinning = Acres thinned ? Cash flow per acre Cash flow from thinning = 5,000($1,000) Cash flow from thinning = $5,000,000 The real cost of the conservation fund is constant, but the expense will be tax deductible, so the aftertax cost of the conservation fund will be: Aftertax conservation fund cost = (1 – . 35)($250,000) Aftertax conservation fund cost = $162,500 For each analysis, the revenue and costs are: Revenue = [? (% of grade)(harvest per acre)(value of board grade)](acres harvested)(1 – defect rate) Tractor cost = (Cost MBF)(MBF per acre)(acres) Road cost = (Cost MBF)(MBF per acre)(acres) Sale preparation and administration = (Cost MBF)(MBF acre)(acres) Excavator piling, broadcast burning, site preparation, and planting costs are the cost of each per acre times the number of acres. These costs are the same no matter what the harvest schedule since they are based on acres, not MBF. Now we can calculate the cash flow for each harvest schedule. One important note is that no depreciation is given in the case. Since the harvest time is likely to be short, the assumption is that no depreciation is attributable to the harvest. This implies that operating cash flow is equal to net income. Now we can calculate the NPV of each harvest schedule. The NPV of each harvest schedule is the NPV of the first harvest, the NPV of the thinning, the NPV of all future harvests, minus the present value of the conservation fund costs. 40-year harvest schedule:    |Revenue |$42,194,250 | |   |Tractor cost |9,870,000 | |   |Road |3,525,000 | |   |Sale preparation & admin |1,269,000 | |   |Excavator piling |750,000 | |   |Broadcast burning |1,500,000 | |   |Site preparation |725,000 | |   |Planting costs |1,125,000 | |   |EBIT |$23,430,250 | |   |Taxes |8,200,588 | |   |Net income (OCF) |$15,229,663 | The PV of the first harvest in 20 years is: PVFirst = $15,229,663/(1 + . 0608)20 PVFirst = $4,681,788 Thinning will also occur on a 40-year schedule, with the next thinning 40 years from today. The effective 40-year interest rate for the project is: 40-year project interest rate = [(1 + . 0608)40] – 1 40-year project interest rate = 958. 17% We also need the 40-year interest rate for the conservation fund, which will be: 40-year conservation interest rate = [(1 + . 0659)40] – 1 40-year conservation interest rate = 1,183. 87% Since we have the cash flows from each thinning, and the next thinning will occur in 40 years, we can find the present value of future thinning on this schedule, which will be: PVThinning = $5,000,000/9. 5817 PVThinning = $521,825. 80 The operating cash flow from each harvest on the 40-year schedule is $15,229,663, so the present value of the cash flows from the harvest are: PVHarvest = [($15,229,663/9. 5817)] / (1 + . 0608)20 PVHarvest = $488,615. 51 Now we can find the present value of the conservation fund deposits. The present value of these deposits is at Year 20 is: PVConservation = –$162,500 – $162,500/11. 8387 PVConservation = –$176,226. 22 And the value today is: PVConservation = –$175,226. 22/(1 + . 0659)20 PVConservation = –$49,182. 52 So, the NPV of a 40-year harvest schedule is: NPV = $4,681,788 + 521,825. 80 + 488,615. 51 – 49,182. 52 NPV = $5,643,046. 36 45-year harvest schedule:    |Revenue |$49,232,800 | |   |Tractor cost |11,480,000 | |   |Road |4,100,000 | |   |Sale preparation & admin |1,476,000 | |   |Excavator piling |750,000 | |   |Broadcast burning |1,500,000 | |   |Site preparation |725,000 | |   |Planting costs |1,125,000 | |   | EBIT |$28,076,800 | |   |Taxes |9,826,880 | | |Net income (OCF) |$18,249,920 | The PV of the first harvest in 25 years is: PVFirst = $18,249,920/(1 + . 0608)25 PVFirst = $4,177,464 Thinning will also occur on a 45-year schedule, with the next thinning 45 years from today. The effective 45-year interest rate for the project is: 45-year project interest rate = [(1 + . 0608)45] – 1 45-year project interest rate = 1,321. 11% We also need the 45-year interest rate for the conservation fund, which will be: 45-year conservation interest rate = [(1 + . 0659)45] – 1 45-year conservation interest rate = 1,666. 38% Since we have the cash flows from each thinning, and the next thinning will occur in 45 years, we can find the present value of future thinning on this schedule, which will be: PVThinning = $5,000,000/13. 2111 PVThinning = $378,470. 46 The operating cash flow from each harvest on the 45-year schedule is $18,249,920, so the present value of the cash flows from the harvest are: PVHarvest = [($18,249,920/13. 21111)] / (1 + . 0608)25 PVHarvest = $316,209. 37 Now we can find the present value of the conservation fund deposits. The present value of these deposits is at Year 25 is: PVConservation = –$162,500 – $162,500/16. 6638 PVConservation = –$174,800. 29 And the value today is: PVConservation = –$174,800. 29/(1 + . 0659)25 PVConservation = –$35,458. 26 So, the NPV of a 45-year harvest schedule is: NPV = $4,177,464 + 378,470. 46 + 316,209. 37 – 35,458. 26 NPV = $4,836,685. 86 50-year harvest schedule:    |Revenue |$52,024,993 | |   |Tractor cost |12,110,000 | |   |Road |4,325,000 | |   |Sale preparation & admin |1,557,000 | |   |Excavator piling |750,000 | |   |Broadcast burning |1,500,000 | |   |Site preparation |725,000 | |   |Planting costs |1,125,000 | |   |EBIT |$29,932,993 | |   |Taxes |10,476,547 | |   |Net income (OCF) |$19,456,445 | The PV of the first harvest in 30 years is: PVFirst = $19,456,445/(1 + . 0608)30 PVFirst = $3,316,238 Thinning will also occur on a 50-year schedule, with the next thinning 50 years from today. The effective 50-year interest rate for the project is: 50-year project interest rate = [(1 + . 0608)50] – 1 50-year project interest rate = 1,808. 52% We also need the 50-year interest rate for the conservation fund, which will be: 50-year conservation interest rate = [(1 + . 0659)50] – 1 50-year conservation interest rate = 2,330. 24% Since we have the cash flows from each thinning, and the next thinning will occur in 50 years, we can find the present value of future thinning on this schedule, which will be: PVThinning = $5,000,000/18. 0852 PVThinning = $276,468. 34 The operating cash flow from each harvest on the 50-year schedule is $19,456,445, so the present value of the cash flows from the harvest are: PVHarvest = [($19,456,445/18. 0852] / (1 + . 0608)30 PVHarvest = $183,367. 60 Now we can find the present value of the conservation fund deposits. The present value of these deposits is at Year 30 is: PVConservation = –$162,500 – $162,500/23. 3024 PVConservation = –$171,485. 25 And the value today is: PVConservation = –$171,485. 25/(1 + . 0659)30 PVConservation = –$25,283. 50 So, the NPV of a 50-year harvest schedule is: NPV = $3,316,238 + 276,469. 34 + 183,367. 60 – 25,283. 50 NPV = $3,750,790. 98 55-year harvest schedule:    |Revenue |$54,516,748 | |   |Tractor cost |12,670,000 | |   |Road |4,525,000 | |   |Sale preparation & admin |1,629,000 | |   |Excavator piling |750,000 | |   |Broadcast burning |1,500,000 | |   |Site preparation |725,000 | |   |Planting costs |1,125,000 | |   | EBIT |$31,592,748 | |   |Taxes |11,057,462 | |   |Net income (OCF) |$20,535,286 | The PV of the first harvest in 35 years is: PVFirst = $20,535,286/(1 + . 0608)35 PVFirst = $2,606,233 Thinning will also occur on a 55-year schedule, with the next thinning 55 years from today. The effective 55-year interest rate for the project is: 55-year project interest rate = [(1 + . 0608)55] – 1 55-year project interest rate = 2,463. 10 We also need the 55-year interest rate for the conservation fund, which will be: 55-year conservation interest rate = [(1 + . 0659)55] – 1 55-year conservation interest rate = 3,243. 60% Since we have the cash flows from each thinning, and the next thinning will occur in 55 years, we can find the present value of future thinning on this schedule, which will be: PVThinning = $5,000,000/24. 6310 PVThinning = $202,995. 97 The operating cash flow from each harvest on the 55-year schedule is $20,535,286, so the present value of the cash flows from the harvest are: PVHarvest = [($20,535,286/24. 6310] / (1 + . 0608)35 PVHarvest = $105,810. 96 Now we can find the present value of the conservation fund deposits. The present value of these deposits is at Year 35 is: PVConservation = –$162,500 – $162,500/32. 4360 PVConservation = –$169,097. 37 And the value today is: PVConservation = –$169,097. 37/(1 + . 0659)35 PVConservation = –$18,121. 00 So, the NPV of a 55-year harvest schedule is: NPV = $2,606,233 + 202,995. 97 + 105,810. 96 – 18,121. 00 NPV = $2,896,918. 96 The company should use a 40-year harvest schedule since it has the highest NPV. Notice that when the NPV began to decline, it continued declining. This is expected since the growth in the trees increases at a decreasing rate. So, once we reach a point where the increased growth cannot overcome the increased effects of compounding, harvesting should take place. There is no point further in the future which will provide a higher NPV. CHAPTER 8 FINANCING EAST COAST YACHT’S EXPANSION PLANS WITH A BOND ISSUE 1. A rule of thumb with bond provisions is to determine who the provisions benefit. If the company benefits, the bond will have a higher coupon rate. If the bondholders benefit, the bond will have a lower coupon rate. a. A bond with collateral will have a lower coupon rate. Bondholders have the claim on the collateral, even in bankruptcy. Collateral provides an asset that bondholders can claim, which lowers their risk in default. The downside of collateral is that the company generally cannot sell the asset used as collateral, and they will generally have to keep the asset in good working order. b. The more senior the bond is, the lower the coupon rate. Senior bonds get full payment in bankruptcy proceedings before subordinated bonds receive any payment. A potential problem may arise in that the bond covenant may restrict the company from issuing any future bonds senior to the current bonds. c. A sinking fund will reduce the coupon rate because it is a partial guarantee to bondholders. The problem with a sinking fund is that the company must make the interim payments into a sinking fund or face default. This means the company must be able to generate these cash flows. d. A provision with a specific call date and prices would increase the coupon rate. The call provision would only be used when it is to the company’s advantage, thus the bondholder’s disadvantage. The downside is the higher coupon rate. The company b

One Way ANOVA Involves Comparison of Two or More Populetion Means Research Paper

One Way ANOVA Involves Comparison of Two or More Populetion Means - Research Paper Example This sample will be a good one since it will be easier to administer the survey to the 50 employees as compared to the whole population. In addition, by using simple random sampling we will reduce the degree of biasness in the data that we will collect. In our survey, we will use an anonymous questionnaire in which the employees will not be required to provide their personal details like names or employees numbers. Moreover, the questionnaires will be distributed to the respondent by a group of interviewers who will collect them later in the evening. This will not only help in promoting the truthfulness of our data but also the confidentiality and privacy of the respondents.Since the survey will be anonymous there will be no need for individual’s consent. The data we will be aiming to obtain using the questionnaire will not include any form of personal sensitive data. The benefits that respondents will gain from the survey is that the information obtained will be handed over t o the business management team that can use it in determining which kind of incentive to use to motivate them. To protect the interests of my respondents, I decided to use a self-administered questionnaire thus the information obtained by the questionnaire would not be traced to a specific employee. Moreover, I will use people who are not affiliated in any form with the management of the business to distribute and collect the questionnaires. A day or two before the actual date of the survey, I will write an email to all the employees in that business requesting them to participate in the survey if selected for our sample. These pre-message will be dear sir/ madam, two days from now I will distribute some questionnaires to some of you who will be randomly selected for the survey that I have created. The survey relates to a research that I am conducting to determine what motivates employees to work harder. I realize that you might be selected for our sample since the selection will be fully random. Please take a few minutes of your time to complete the questionnaire that will be distributed to you. The questionnaire will be anonymous and less than for pages and thus it will not take much of your time, thank you. I will also send them a post email a day or two after the actual survey date. This message will be a thank you note for helping me in my research by participating in the survey I undertook in your place of work. Any kind of information you volunteered to give will be held with the highest degree of confidentiality and will only be used for this research only, Regards. Our first hypothesis is that motivational program or incentive schemes are effective in improving employees’ performance. In this case, we will have one variable, which will be the number of employees. This variable will be measured in two categories; one category will be those employees who think they are motivated by motivational programs and incentive schemes while the other categ ory will be those who think otherwise. This variable is measuredon an interval basis and it is a numerical variable. This variable will be analyzed using one way ANOVA which can be done using SPSS do determine the categories which carry more weight. â€Å"One way ANOVA involves comparison of two or more population

Dress and Ideology within the Kiss Army Essay Example | Topics and Well Written Essays - 750 words

Dress and Ideology within the Kiss Army - Essay Example The band is one of a few different bands, notably of the 1970's and 1980's, to dress up and paint their faces for shows and they did so out of a desire to be different from the norm. Working together with the odd dress were the outrageous antics of the band members, all designed to scare away those people not suited to the lifestyle; subsequently it was these aspects of Kiss that pulled in many loyal followers because of their own innate desire to be different from the masses. Because of this, it is ironic that the struggle to be different culminated in the conception of a club; the Kiss Army boasts thousands of members and each of these is dedicated to the principles on which the band was founded: namely, the daring to be different and to willingly repulse normal members of society, and of course a real appreciation for the music. It was this undying fan loyalty and image that helped Kiss become of the most successful bands of all time in terms of merchandising2. Kiss Army member Chris Jenson has said that being a part of this particular fan club is unlike any other fan club experience: "Kiss Army members are more adventurous and connected to each other than people in other fan clubs. They joined because they like what the music and the look of Kiss did to society and they'll always remember that"3. The dress code is not what fundamentally binds these members together, but it is what lets them identify each other and feel at home within the group. The giant black boots, the fake spiked costumes and the black and white painted faces are all a part of dressing to belong and to simultaneously express oneself. Although the seeming conformity of dressing alike and in reverence to one band might negate the efforts of the individual to set him or herself apart, if you think of it more in terms of each individual coincidentally expressing themselves in the same way, you can get a feel for what the Kiss Army members experience in dressing up. The Kiss fashion style donned by thousands of fans has not in itself evolved over the years although the band members have experimented with different looks since the inception of the Kiss Army4; men, women and children all dress alike5 and no major modifications have been made to the costumes as they still mimic the band members at the height of their popularity several decades ago. All in all, it is the unchanging facets of the Kiss fan subculture that keeps members sure about what they are identifying with and what they are expressing by dressing up accordingly. Bibliography Jason Jarmo. A KISS Army of One. IQ, 2005; http://www.indstate.edu/iq/Geek_Issue/Kiss_Army.htm. This source was helpful for understanding the background of the Kiss Army and gaining insight to the reasons why such a group would form and be one of the more substantial fan clubs. C.K. Lendt. Kiss and Sell: The making of a supergroup. Billboard Books, 1997. This book makes it clear that Kiss is not only a phenomenon because of its music, fashion and followers, but because of the shrewd marketing abilities of the members. Kiss is a huge success in merchandising and without this the continuation of the band might not have been

Cultural and Feminist Perspectives Essay Example | Topics and Well Written Essays - 1250 words

Cultural and Feminist Perspectives - Essay Example rmation Age, where the barriers to communication have dissolved in the realm of the internet, the need for a common approach as to what constitutes ethical behavior cannot be disputed. The three most important ideas, which are relevant to any debate on a common ethical framework for humanity, are the failure of faith as a criterion for ethics, the need to avoid the imposition of one particular system as the universal answer, and the absolute necessity for a global definition of ethics, which incorporates various perspectives. When faith, or religion, is adopted as the foundation of ethical belief, it can only lead to dissension. All religious views of values and ideals are obviously based on the divine authority and revelations particular to a certain religion. Any religious justification of ethics can belong only to one particular faith, as each religion has its own unique perspective of the individual and his relationship with the world. It would be difficult to reconcile all religions. For example, the Buddhist view of the personal self as a delusion is completely opposed to the Judeo-Christian emphasis on individualism. Likewise, the Eastern faiths are to a large extent mystical, in contrast to the realism of the Western religions. The holistic, cyclic oriental perspective is again totally different from the dualistic, linear approach of the West. Religions advocate absolute truths. When each faith proposes its own absolute truth, it is obvious that religion cannot be an acceptable basis for ethics. The irreconcilable differences in the world religions make it evident that faith-based ethics can only serve as a personal guide to ideals. They cannot be accepted as a universal framework for humanity. Religious fundamentalism is the most blatant origin of discord and violence today, and warns us that any religious basis of ethics is impossible. Morality, based on religion, can only lead to war. At the same time, faith is obviously one of the most powerful

The Pocatello Prison Siting Story Essay Example | Topics and Well Written Essays - 1250 words - 1

The Pocatello Prison Siting Story - Essay Example There are certain challenges attached to building a new prison. While there are economic issues to consider, there are political complications that also may cause hindrance in selecting an area as a potential site for a prison. One major problem that has taken severe shape in the United States is overcrowding in state’s prisons. That excessive number of prisoners incarcerated every year is reflected in the fact that although America consists of only 5 percent of the global population, the country’s total number of prisoners is about 25 percent of prisoners around the world (The Challenges of â€Å"realignment†, 2012). This results in huge demand for building more prisons which leads to greedy bargaining of prison-guards union. Therefore, it is not surprising that state prisons have been exerting an enormous pressure on the state budget. Moreover, growing number of prisons in rural areas or small towns has also become a matter of humanitarian concern. Since most prisons in the United States are overcrowded, heath issues have taken a serious form. However, misery of the prisoners is always a subtle issue for the mainstream population in America as majority of state prisons is situated in remote locations from cities, often in deserts area inland which are dusty. Even till a few years back, one acute problem occurred in the manner that double the number of prisoners were housed in a prison than is actually permitted, especially in the city of California. To deal with this crisis, in 2011 the U.S. Supreme Court ruled that prisons should hold only that number of prisoners which will allow to sufficiently maintain humane conditions (The Challenges of â€Å"realignment†, 2012). The case study of the siting of the Pocatello Prison is one example that reflects the many ramifications (both political and rational) that arose from the decision of building a new women’s prison by the state of Idaho. For many

Banking - International expansion of commercial banks Essay

Banking - International expansion of commercial banks - Essay Example However, despite the benefits associated with this trend of internationalization such as the availability of funds, risk diversification and enhancement of efficiency in the local banking sector, it also has the demerit of causing financial shocks to an economy as observed in the recent financial crisis. Considering the increased expansion and growth of international trade and business networks, internationalization of banking sector has become very important to our current global economy. This is because through international banks access to funds has been eased especially to credit-constrained firms and households; in addition, this has introduced competition in the local banking sector that has led to increase of consumer surplus due to decreased rates of borrowing and increase on interest rates paid on deposits. Furthermore, this competition has led to local banks being more efficient and as a result enhancing economic stability Internationalization of the banking sector has the benefit of facilitating capital flows especially from the economies rich in capital to the poor ones where the returns are perceived to be higher (Mullineux & Murinde 4). This in turn enhances the growth of the poor economies by boosting their savings and investments as well as reducing their capital costs. In addition to this, internationalization leads to the stability of the highly volatile interest rates owing to the convergence of local interest rates with those in international markets. However, this benefit has been doubtful and elusive following the recent financial crisis. On the other hand, despite the increased numbers of banks turning international, those that have successfully turned their exploits to profitability have been very few owing to the risks associated with the venture. Capital flow despite being a benefit of commercial bank internationalization, it is also one of the leading causes of the liquidity risks in an economy associated with internationalization. Th is is usually associated with the cross-border outflow of capital that greatly influences and affects the economic stability of a country. Moreover, considering there is interest rates differences amongst countries capital will flow to those economies where there are high returns expected and those whose central banks have low mandatory deposits with commercial banks. In addition, due to the capital inflow from these foreign banks increases liquidity in a country this may negatively affect the monetary measures undertaken by central banks in combating economic and monetary issues in the given economy. This implies that as a result of commercial bank internationalization has led to lack of autonomy in the application of monetary measures and policies in a given economy that has international banks. Furthermore, the entry of foreign banks may bring about equity problems hampering the local completion to the disadvantage of the local or domestic banks that cannot access equity as easil y as the foreign banks. Moreover, despite the allure that banks find when internationalizing often comes with the disadvantage of exposing themselves to uncertain political and economic risks associated with different economies country risks (Schoenmaker 35). This is because the process of internationalization exposes a bank to an economy’s market specific and inherent factors for instance regulatory frameworks, unfamiliar

The Economic Growth of China and Decline of the West Essay

The Economic Growth of China and Decline of the West - Essay Example It is also quite possible that China may never overtake the west because its population growth is set to fall in coming years, and this will reduce economic growth greatly. For instance, Due to China’s policies to control their large population such as the â€Å"one child per family policy† (Qian, 2009), sterilization of people who have two children (Scharping, 2005), China will have a large population aged over 65 years old. It’s working population will, therefore, reduce resulting in slower economic growth due to reduced labor, hence lower GDP. The countries in the west have a steady and almost constant increase in population. There is, therefore, an assurance that the human capital will always be available to work in the industries and sectors to increase production (Weston, 2004). Thus, this gives the west a competitive edge of China now and in the future.   China’s political instability to some degree holds its economic growth. Politically powerful state-owned enterprises and state-controlled banks resist internationalization of their currency, the Yuan. Being government agencies, they usually have control over the policies that are made. Private business groups that support financial liberalization, usually have zero to weak influence on the Chinese policymaking (Weston, 2004).

Political Equality Essay Example | Topics and Well Written Essays - 1500 words

Political Equality - Essay Example Hence, it is a citizen right irrespective of his or her origin, gender, race, political persuasion or opinion to exercise what according to the constitution is a mandatory. This implies a person based on what he or she feels towards a certain issue should express oneself freely but within the guidelines set by his or her states’ constitution (Neyer, 2012). In addition, political equality implies every person bears â€Å"equality under the law† (Bond & Smith, 2010, p. 8). This means any regime ought to demand adherence to all set laws from its respective citizens without any impartiality based on either status or identity (Bond & Smith, 2010). This also applies in arbitrating justice where any wrongdoer should face fair judgment without any bigotry. Case study Contemporary evidence of political equality is evident in Guatemala where the regime not only ensures effective mechanisms meant to promote ethnic mobilization but also women to participate in politics (Vogt, 2011) . Ethnic mobilization in this case refers to the† ethnicization† of the former marginalized groups in Latin America, which did not have any say in influencing any political process or action there earlier but lived in passivity of what other mainstream groups already implemented. However, this norm by inferior ethnic groups continuously experiencing political marginalization has ceased to exist where many of them since 1970s up to date have explicitly emerged to the limelight of political arena to claim equal treatment (Vogt, 2011). Equal treatment or say in this case implies enjoying same land rights, bilingual education/culture and even self-determination in their respective territories without any form of coercion from the state or influential people (Vogt, 2011). Latin America and especially Guatemala to have this attainment has taken persistent civil disobedience by varied movements in the region, which up to date they are still active prompting the female gender to take part in politics (â€Å"UN Women†). This is due to the elimination of numerous barriers in form of segregation and low opinion of the female gender especially while showing interests of venturing in politics. The evidence of political equality in Guatemala in terms of political participation was evident in 2011 whereby 51% of all voters comprised the female gender besides recording high number of women candidates vying for varied posts contrary to other past years (â€Å"UN Women†). Consequently, prompting UN Women claim the time for the female gender to determine the shape of Guatemala’s politics has already come. However, this overwhelming emergency of women in politics during then up to date was through UN Women’s efforts by training candidates especially from small ethnic groups, which due to their earlier inferiority experienced marginalization (â€Å"UN Women†). Training initiatives mainly provided by UN Women focuses creating awareness concerning the essence of voting by indigenous women and increasing their political presence. This is because they will not only claim their fundamental rights but also develop others by imparting them with the right political

Expectations within my job role Essay Example for Free

Expectations within my job role Essay As a professional worker within Clare Lodge I have many expectations within my job role. As a secure care home I am governed by several pieces of legislation that outline the rules, boundaries and policies that are provided for us by Peterborough City Council. These include the National Minimum Standards, these are the standards that the home as a whole are expected to be working to. Some of the things outlined in these standards are wishes and feelings of the child, equality and diversity, safeguarding, health and well being, contact, placement preparation and suitability to work with children. It is imperative and expected to work professionally in my job role and the children’s safety and care comes above anything else, even when looking after your colleagues, if someone is not behaving in a professional manner then it is the expectation of the employee to use policies provided to deal with it. The policy to be used would be in respect of â€Å"Whistle blowing†. As I am in a professional role I have my own rights as well. I have the right to be treated fairly and with dignity under the policies provided. I also have the right to protect my own safety be it within a union angle, within a physical intervention process, for my own health and safety with equipment provided and from a safeguarding perspective I have the right to not take on tasks which I feel could put myself at risk from allegation. It is important that I exercise my rights and my professional expectations, always working within the training, policies and legislation provided to me. Having feedback affects my role and practise as a professional worker. Any feedback that I receive should be constructive so that I am able to learn from it and be factual to truly reflect the practise that I show. There are several ways this feedback can be given to me. First of all I receive feedback through supervision with my line manager. This involves a monthly meeting of a minimum of one hour. In this it is my responsibility to bring an agenda and discuss anything I wish to speak about, it is also the responsibility of my supervisor to bring any practise issues and offer of resolution or training to it. Secondly in my role I can receive feedback from my colleagues through meetings, email and 1-2-1 chats. It is important  that this happens to build relationships with your colleagues and produce effective team working. Last of all the most imperative form of constructive feedback is from the young people, they will tell you in the best way they can if you are helping them in the right way through key work sessions, girls meetings and general conversation. It is not good or professional to take this feedback when they are in a heightened state as it will not be a truly reflective account of how they are feeling you are working with them. As a professional we are bound to provide a â€Å"Duty of Care† to myself, my colleagues and the young people I care for. I also have a CALM (Crisis aggression limitation management) instructor certificate which binds me to monitor Duty of care within physical intervention within the unit. What is meant by duty of care is following all rules, boundaries and policies of the unit in the best interest and care of young people and staff. For example, I cannot sit back and watch a young person be assaulted by another and in the same breath cannot watch a staff member get hurt because I don’t want to get involved in a restraint. Not conforming to duty of care is being negligent and this is against the law under Common Law. It states in common law that negligence places people at risk and therefore you are going against risk assessments in place and provided by the unit and its employees to keep everyone safe. It also falls into things such as the Health and Safety Act 2004 where all staff are responsible and have a duty of care to clear up spillages, obstructions and report any damages for them to be dealt with and keep the staff and young people safe.

The Effects Of Infrastructural Facilities

The Effects Of Infrastructural Facilities Infrastructure are the basic facilities, services, and installations needed for the functioning of a community or society, such as transportation and communications systems, water and power lines, and public institutions including schools, post offices, and prisons. Large infrastructure projects generally stimulate demand for nearby real estate .these infrastructural projects usually create abundance of jobs as well as follow on demand for goods and services. They also provide a more effective use and connectivity of the available economic resources and the resulting increase in economy activity from new and more disposable income will in turn typically boost. Economic growth, thats why people will want to purchase or rent residential estate in location within close proximity to major works, Major infrastructure project can take many forms and often include transport, infrastructure improvement such as link roads, railway line extension, new bridges and major freeways. Other projects could be new shopping malls and commercial precincts, new power stations, improve communication facilities industrial areas and business parks, new hospital, school and universities. These can all have an impact property values and demand for residential properties. It is also worthy to note that the quality and quantity of infrastructure available in a given place societies is the yardstick for measuring the general level of development of that area and a major determinants of property development and their respective value trends. The provision or not of these facilities can positively development affect the rate of property development in a given area and this in turn can improve the property value due to the corresponding boost on economics activities achieved through the better accessibility (road) or the higher degree of convenience from the use of these infrastructural facilities. 1.2 Statement of Problem The infrastructure of a city is a major determinant on the demand of houses. One of the major problems affecting housing demand in Lokoja. The poor infrastructure provision in the study area affects the rate of housing Demand in the area, this is because people will only buy or rent houses in areas were the infrastructure provision is sustainably available,this will help to enhance the livability in the community. The poor infrastructure provision in Adankolo is a major determinant on the decrease in the rate of housing demands in the study area. Those who are living in the study area have no choice because they cannot afford the rent in other livable towns . Housing is an enclosed component or structure that has services which support the comfort and existence of human living. These services or facilities are numerous some of which include; kitchen, toilet, refuse disposals, good road networks, electricity, telecommunication and others. Ogedengbe and Oyedele, (2006) carried a research on effects of waste disposal on property values, similarly Robet in his work The Effects of Road Infrastructure on Property Values emphasized more on just road as a facility affecting demandvalues, Whereas many other facilities affect values of residential properties. This now poses a gap between these previous empirical studies hence there is need to reconsider many other facilities as they affect housing demand and housing demand of residential properties. 1.3 Aim and Objectives The aim of this study is to ascertain the effects of infrastructural facilities on housing demand in Lokoja metropolis. OBJECTIVES To identify the various infrastructure available in the study area. To examine the adequacy of infrastructural facilities provision on the residential properties in the study area To recommend possible solution to the problems of housing in the study area. 1.4 Scope of the study This research work intends to determine the effects of infrastructural facilities on housing demand in Lokoja. It is limited to Lokoja metropolis alone with particular emphasis on two areas namely; peace community ganaja village and Adankolo for comparative analysis. 1.5 Justification Although challenges surrounding life and human wants are limited and endless, however these study focuses on the effects of infrastructural facilities on housing demand in Lokoja. And this particular studywill serve as a guide to the following. Urban and regional planners and other allied professionals such as builders, architect, engineers, and others in their various field of activities .for example, these study would give the city managers the ideas of important of infrastructural facilities in there different areas. It serves as a tool to all researchers in the field particularly in the study area.(Lokoja) 1.6 The Study Area Lokoja, Nigeria is located at 7.80236 [latitude in decimal degrees], 6.743 [longitude in decimal degrees] at an elevation/altitude of meters. The average elevation of Lokoja, Nigeria is 55 meters.Lokoja is also a Local Government Area of Kogi State with an area of 3180 km ² and a population of 195,261 at the 2006 census. It is bounded by the Niger in the north and east upstream from the capital until the border with Kwara State, and includes the city of Lokoja. The postal code of the area is 260.The original site of Lokoja, is a 1,349-foot- (411-metre-) high mass of oolitic iron ore. The town has a hydroelectric power generating plant. It is situated on the local highway between Kabba and Ayangbe and has ferry service across the Niger River. Formerly the capital of Kabba province, Lokoja was part of Kwara from 1967 to 1991, when it became the capital of the newly formed state of Kogi. CLIMATE Climate: The site has a tropical climate that comprises of two season namely dry and wet seasons. The wet seasons starts from the month of April and ends in October, while the dry season starts from November and continues till March. The two seasons are affected by the south-westerly winds coming from the Atlantic Ocean and north-easterly winds which come from the Sahara Desert. Another weather phenomenon (micro climate) is associated with the presence of inselbergs. This feature exerts an influence on local weather greater than their size. Rainfall: Rainfall data obtained from the Department of Meteorological Services Lokoja for 25 years (1989- 2005) reveals that the maximum daily rainfall figures of Lokoja town are as follows: Humidity and Temperature: The highest temperatures in the study area always tend to occur at the end of the dry season close to the spring equinox. Thus March has the highest temperature of about 34.5 c, while the lowest temperature occur in the middle of the dry season in December/January, when outgoing radiation is encouraged by low humidity, clear skies and longer nights. The temperature at this time falls as low as 22.8 c. In the dry season there is a decrease in relative humidity from south to north in the study area caused by the higher elevation in the north. In the rainy season, this variation disappears and associated with the high relative humidity is an extensive cloud cover over the region. ECONOMY Agriculture is main stay in Lokoja area economy, various crops are widely grown in the area which includes; coffee, cocoa, palm oil, cashews, groundnuts, maize, cassava, yam, rice and melon.The state is home to the largest iron and steel industry in Nigeria known as Ajaokuta Steel Company Limited. One of the largest cement factories in Africa, the Obajana Cement Factory . MAP OF NIGERIA DEPICTING STUDY AREA Limitation of the Study The major problem in the field of study is language barrier and through these, the researcher that did not understand their language (respondents) will find it difficult to express his mind freely to those that did not understand English language which is the general language in Nigeria, among the respondents. Another problem is illiteracy among the respondents; because some of the respondent finds it difficult to fill questionnaire which is the main information needed from them for the completion of the project. Lastly regardless of these limitations, data collected are sufficient enough to reach the research objectives. 1.8 Definition of Terms Infrastructures It can be generally defined as the set of interconnected structural elements that provide framework supporting an entire structure of development The term typically refers to the technical structures that support a society, such as roads, bridges, water supply, sewers, electrical grids, telecommunications, and so forth, and can be defined as the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions The terms housing demand and housing needs are often confused. There are Some key differences between housing demand and housing needs that must beclarified. The meaning assigned to both terms is erroneously similar in manydocuments. The following statement is extracted from the study of housing- Demand models published by the Housing Branch in Hong Kong which asserts that: Housing needs Housing needs is defined as the number of existing ornew households requiring adequate housing. Anadequately housed household is one that lives in selfcontained living quarters made of permanent material.(Liu, Wu, et al. 1996) They also proffer a workable definition of housing demand, viz: Housing demand Housing demand is defined as the number of householdsactually seeking accommodation. In the public sector,demand is assumed to be equal to housing needs. In theprivate sector, demand is constrained by affordability. Facility may refer to: An installation, contrivance, or other things which facilitates something; a place for doing something: Literature Review Infrastructure has been variously defined, according to William Merish and Catherine Brown described infrastructure as the systematic framework which underpins a communitys ability to fulfill its mission of providing a basis of its citizen to productive and to nurture social equity.Omuojine(1997) described it as the stock of fixed capital assets in a country for example Road, railways, Airports, Hospitals, Waterway, power stations, water works, and telecommunication network. It serves as slender threads that weaves together human want and value with those of the environment.Literally, it refers to fixed facilities or installation traditionally provided by public sector. Omuojine (1997) classified it as followed. Transportation including road, railway, airports, seaports and water way. Water supply including water works and Dams Electricity including power stations Telecommunication including postal, telephone, telex, fax, mile services. Health including Hospital, maternity home, and health centers. Sanitation and solid waste disposal. Drainage and Embankments. Infrastructures have certain characteristics viz. Requires large lump sum investment. Entails considerable economic of scale which results in monopolies. Has a high level of externalities both positives and negatives. Intermediate input characteristics. Possess important networks effects. Posses difficulties in cost recovery. While these characteristics have generally remained true, the exact character trait will depends on whether it is urban, rural or inter rural. Infrastructure or trunk and feeder type of fixed/ moving facilities, or the operator of the facility i.e. Whether public or private, central/ state, local Government agencies. Infrastructures include the aggregate of all facilities that enables a society to function effectively, by providing the physical facilities, which moves people, goods, commodities, water, waste, Electricity, road, sewerage and information infrastructure provides an enabling environment for growth and enhanced quality of life.PojuOnibokun (1985) infrastructure is therefore; universally regarded as the engine that drives the city. The linkage between the economy activities and infrastructure continue to grow stronger and more critical as an economic activity becomes increasingly more complicated and global in scope. Lawal (1997). Through the provision of urban infrastruct ure is tradition all the presence of government, the growing difficulties and limitation of public finance and the reality of the wide gap between the demand and supply of infrastructures services with all its pervasive effect inevitably compel urban authorities to look to the private sector and community. Based organization (cbos) for partnership. Babawale (2004) infrastructure is generally poor in developing countries. Although it differs widely among countries and sectors. In Nigeria for instance most households and private companies get electricity form private generating sets because of power holding of Nigeria unreliability. This imposed extra cost on companies and environmental effects on neighbors. There is no water supply in most cities and therefore no waste disposal system. HOUSING DEMAND Housing demand is defined as the housing need people backed up with the purchasing power or the ability and willingness to pay. According to You (1993). As quoted in Olufemi(1993), housing demand could be expressed in term of purchasing power, a function of income, family size, location and tradition etc. Housing demand is different from need. It is only when the need (desire) is backed up with price or rent that we talk of effective demand.According to Robinson (1979), there are three main component of housing demand and these are. From new households, demand from movers between tenure group and demand from existing household within a particular tenure groups. The author also noted that renting is an important feature of demand. This is because the majority of household who could not build or purchase their own home often result to renting. Demand for housing differs from place to place across the socio- economic groups. For instant demand in the city differs from that of the rural areas. Demand also differs among high, medium, and low income groups. Housing demand also changes with time and with social and economic situations. In Nigeria for instance there is a noticeable change in the demand for different type of units. As income and building technology changes. There has been gradually change from the demand for row housing or face to face tenement to more modern housing types such as self contain and flats apartment as well as duplexes. Generally,housing market or sub market of the low income group demonstrates a great diversity of demand, which result from two major factors (UNCHS, 1996) first is there disposal income and the second is how much they are prepared to spend on housing. The amount of money they are willing to spend on housing is in turn determined by the type of accommodation available, the location, s ize, and quality of the houses in terms of infrastructure and services available, and the level of security offered. The demand for housing is a reflection of the ability of household to pay for them. Thus, an examination of households, income and prices of housing unit provides a basis for accessing housing demand, an assessment of the housing demand situation in Nigeria by the UNCHS (1993) reveals that the different income groups are confined to different options. Generally, the poor economic situation in Nigeria during and in the post. Structure adjustment program (SAP) period has affected the purchasing power of the majority. Although household income have risen, in numerical terms, by a factor of about five since 1987, the purchasing power has declined by a factor of about eight(UNCHS,1993). It is therefore observed that the household income of the lowest income group are too low to allow them to exercise any effective demand for formal housing in the open market consequently, majority of the low income household cannot afford any form of formal housing without subsidy. Thus they resort to sur vival outside the formal housing market. For this group the UNCHS (1993) observed that. the present 20% of the household do not earn enough to participate in formal housing market in the urban area. They resort to various informal housing arrangements for themselves. This arrangement includes the setting -up of shanty dwellings of their own on land belonging to them(squatting), renting shanty dwelling, colonization of uncompleted multiples storey buildings, occupation of vacant spaces in public buildings at night,etc. BASIC CONCEPT OF HOUSING. Housing is an empirical word as Salau (1990) has written The confusion of given an exact meaning of definition to housing is perhaps due to the multi-dimensional nature of housing itself Agboola (1998) stated that Housing involves series of processes by which resources such as land, labour, finance and building materials are combine to produce new housing. It involves also the upgrading of existing housing to the demanders .He explained further that housing particular delivery system encompasses the process that allocates housing unit to households in particular country and that housing delivery is stimulated and sustained by the demand and supply mechanism this of course,means that in a free market economy like Nigeria, the forces of demand and supply for housing stock, may determine what stocks come into the housing delivery market and who among the demander get what from the market?. According to Baurue (1981), Housing is the provision of all forms of infrastructures for a conducive living environment whereas habitable and standard houses bythe residential or commercial or any other forms of building properly arranged in a statutorily planned area meeting all the forms of planning rules and ordinances in housings.World health Organization (WHO). Defined housing as a residential environment which includes in addition to the physical structures. The main uses for shelter, all necessary services, facilities, equipment and devices needed or desire for physical or social wellbeing of the family and individuals. Ayeni(1984) defines housing as not only referring to the shelter provided by the structure but also the lot on which the shelter stands and the services provided to the lots such as waterand energy supply, waste disposal, drainage, fire and police protection and kick lighter (1986)defined the term housing in its entire ramification to refer to more than just a dwelling but also included all that is within and surrounds thedwelling. Salau(1990) transcends the physical dimensions of shelter and include the general environment within which the structure is located and the availability of essentialsocial services and infrastructural facilities, which ultimately ensure the satisfaction of the population. National housing policy (1991), housing forms an important part of peoples life and it is rather inseparable from them as it provides the users of occupiers shelters, security, privacy, prestige and a means of self-expression. It is a basic need as everyone requires a shelter, which for most people means a home that, is a permanent base in which the greater part of time is spent. Ozo (1987), asserted that a house must be a home;that is , a resting place in which to try to fulfill the fundamental purpose of human society,namely a secure , rewarding, happy or atleast a reliable life.to the individual family,a house as both a shelter and symbols of physical protection and psychological identity of economic valueand a foundation for security and self respect.Olotuali (1997) stated that housing provides the framework of meeting mans need for shelterand it is all encompassing phenomenon of the creation of the environment, in which man grows and lives and grows.Bourne (1981)summed housing up as a physical entity, a good artifact, an economic good, a capital stockand a statue symbol all at once.Madge(1968) assorted that housing is an important element in all capital formation and the largest single component in total building of any nation. According to Omole(2001), housing is more than a mere shelter in its proper definition , housing can be defined as a residential environment which man uses for shelter and the environment of the structure needed or design for his physical and mental health as well as the social being. Ozo (1987), a house is certainly the bulkiest, the most difficult to move and most durable consumer good. In view of the enormous resources requiredin acquiring housing (since it can hardly be purchase out of ones income in less developed countries). It is true measure of the social- economic statues of a society. Looking at the definitions above .therefore a good housing or shelter development of a group of people and a nation at large. A well determined settlement equally determined the productivity and consumption ration as well as economic, moral and welfare terms of the people or nation. THE NIGERIAN HOUSING MARKET The Nigerian housing market is highly untapped and undeveloped despite lot of opportunities that abound in the sector (Akeju 2007). This is basically due to many reasons amongst which includes. Lack of finance Government policy Lack of infrastructural development High level of poverty. There is continuous increase in the average price of house due to increase in cost of building materials and inflation in the economy. This has highly contributed to the upward trend in the house trend in the house price which has significantly affected the number of unit of houses constructed annually. The Government efforts at addressing the problem have not been successful due to its unsustainable approach of providing houses to the people, the houses are grossly inadequate and unaffordable by the larger proportion of the masses for which they are meant for. There are efforts by the private individuals to help in alleviating these housing problems. The bulk of the housing problems is prevalent in urban cities, but there are lot of un occupied and dilapidated houses in the rural areas to urban centers for greener pastures. Most individual that are involved in property development build for their own uses or are home owners, while the few ones involves in building for commercial purposes, build shops and space to let for offices because if the high rental income accruing from such commercial properties. The residential developments in most cases are illegal, informal and untitled. This is due to long, undue delay to title registration and laxity in enforcing development control regulations by the official of the urban and regional planning department (Fasakin and Ogunmakin 2006). Private sectors contribution toward alleviating this housing problems has been I the form of individual efforts, cooperative societies or association, corporate bodies, estate agents, nongovernmental organization / charity organization and foreign investors, their contributions toward alleviating housing problems in Nigeria are briefly discussed below. INDIVIDUALS This represent the greatest source of contribution from the private sector in most urban centers where the housing problem is very prevalent , a greater proportion of the population dwells in residential houses built by private individuals. These individual financed the project through their personal savings, borrowing from family, friends and lenders or cooperative movements. It can be categorically stated that number of housing unit built by individual have been very substantial when compared with other source of constructing houses. (2) COOPERATIVE BODIES The idea of cooperatives housing have started long time ago when individual planning to own a house seek help from relative, in town, neighbors and friends (Wahab 1988). This concept has been successfully tested and certified in countries like Italy, United Kingdom, Zambia, Sweden and Philippines (Daramola, 2006). It is suited to meet the need of low income earner who constitutes the vast majority of Nigerians. The member of the cooperative are able to enjoy housing loan for the construction of their own housing unit. (3) CORPORATE BODIES. The federal government of Nigeria has realized that they cannot solve the housing problem alone. Has involved the cooperate bodies to contributes their own goals towards the achieving the objectives of housing for all. It was evident that most of the companies have totally neglect for housing needs of their workers. These consequently made the Government come to the rescue of the workers. These consequently made the Government come to the rescue of the workers through the promulgation of employee housing scheme (special provision). Decree 54 of 1979, thus compelling any employer of 500 employees to provide minimum housing of 50 units of which 75% should available for non-executive staff. (4) ESTATE DEVELOPER / AGENTS The private developer or estate agents activities were concentrated in Lagos in 1990 and they play significant roles in the development of the Nigeria housing market (Efin. A and Finmark trust,2010), they ensure adequate shelter is provided to meet the demand of the increasing number of people having housing need. They often employ various finance techniques such as turnkey, pre-letting and joint finance to construct housing unit for the people (Nubi 2000). (5) NON GOVERNMENTAL ORGANISATION AND VOLUNTARY ORGANISATION. In recent year there is increasing trends by non-governmental organization and voluntary organization such as religion bodies to contribute their own effort at addressing the housing problems faced by the people in both rural and urban cities. They assist resetting displaced people having housing problem as a result of natural disaster like war, flood, famine, earthquakes, and etc. (6) FOREIGN PARTNERS / INVESTORS. The government through its various development policies has attempted to encourage foreign investors in the housing market. This is usually in the form of foreign partnership with the local estate developers.These provided more capital base for the estate company, thus making them to be involved in large capital based project. The company are usually handling Government housing project which are capital intensive and required more technical expertise and knowledge. THE ECONOMICS OF HOUSING Housing as a product is regarded as a commodity with an exchange value, according to Angel et.al (1992), housing is viewed as a commodity with an exchange value rather than as goods to be produced and allocated outside the market place. Hence the housing sector is composed as a vast set of exchange relations, driven by supply and demand forces which permit all part of the sector despite the existence of apparently distinctive sub markets. (Agunbiade 1993). The units in the standing stock to be traded in the market have a contribution of attributes and qualities, which determines their selling prices. Such attributes include age and durability of structures, total floor space, structural design and internal layout, location accessibility, ancillary services present, security, aesthetics and the general environmental condition. These attributes distinguish one unit from the other. Thus the structural condition of units and the flow of services they yield determine the value of housing unit in the market. According to Robinson (1979) there are two measure of value in the housing market, these are rent and price. Rent is the payment made for a flow of housing services received over a specific period of time while price is the capital value associated with a particular unit of stockin the ordinary sense, we could argue that the value of housing unit (V) is equalto its price (P) i.e. V = P . However in some cases, the different between the exchange value and the actual value is refers to as subsidy, which is often, paid by Government or corporate bodies to their employees. Thus, subsidy could be regarded as a distortion to the actual market determined price or rent of a housing unit. Housing need, supply and housing price in an economy involved complex processes that are influenced by social and economic force. The understanding of the nature and attributes of the demand and supply of housing is therefore important in any housing study. However, before we address the issue of need, demand, supply and price. It is ideal to consider the characteristics of housing as a product 2.5 ROLE OF INFRASTRUCTURAL FACILITIES ON DEVELOPMENT Ratchiffe (1995) classical rent theory conceptualizes that general improvement in access routes (Roads) have positive effect on the areas land values; Boyce and Allen (1974) in Denver studied the impact of accessibility and amenities on property values. They selected several study areas then applied six (6) criteria encompassing accessibility, amenities and property characteristics and used regression analysis to investigate 24,082 property transactions. They identified a positive impact of infrastructural facilities on property values. Stopper and Meybury (1971) claimed that the relevance of transportations facilities in influencing urban growth and development is reflected in most North. American and Europeans town which shows a growth pattern derived largely from transactional routes. Abouchar (1977) investigated the impact of a subway on property value on Toronto, he studies the metropolitan Toronto subway system through on analysis of the operations of welfare criteria with the basic objective of distinguishing the impact of the subway on property value (demand and price) by looking at year to year relative percentage changes in property values in and out of the subway corridor. However, his analysis concluded that the subway had no effect on the property value in the subway area. The validity of findings and conclusion are questionable as the study did not fulfill the requirement of a before and after approach because the analysis of the property market was concluded in 1992 the date the subway began its operation. Abdulateef (1997) observed a positive impact of road transportation and communication on land use development and property values, the provision of infrastructural facilities in any socio economic unit whether a nation, region or community could have either a positive or negative impact on property value. For instance, the provision of an incinerator in a residential district will have a negative effect on the value of the properties in that area while the provision of infrastructural facilities like good roads network, water and electricity supply, drainage system, good refuse collection treatment and disposal system etc enhances values to unpre cedented level just as the inadequacy or lack or these facilities adversely affect value as a paradox. 2.6 IDENTIFICATION OF PUBLIC UTILITIES MANAGEMENT AGENCIES IN NIGERIA The prominent public agencies for the provision and management of the infrastructural facilities in Nigeria are: Power holding company of Nigeria Plc. In charge of electricity generation, distribution and supply to consumers (PHCN) Nigeria telecommunications limited (NITEL) State water corporation State waste management boards Federal road maintenance agencies (FEMA) Nigerian communications commission (NCC) Federal air