Finance and Investment Assignment Answers – Midterm Take-Home Exam Answers

Before you begin:

This is a take-home exam. You are not allowed to use any material including the computer/ internet/ mobile devices. However, you must work on this exam by yourself and you may not discuss this exam with anyone. Emails to the professor for clarification of questions are the only exception to the “no discussing” rule.

General Instructions:

  • The exam is split intotwo sections: Part A: Case Study Analysisand Part B: Practical Analysis
  • Complete each part to the best of your ability.
  • You must use this Word document as the template into which you put your answers.
  • If you will use Excel Sheet as a template when solving the practical part, send the Excel sheet as an attachment with your exam file.

Submission Instructions:

  • The exam will be sent on Thursday11th of February 2021 at 8P.M.
  • The exam is due by Saturday 13th of February 2021 at 8P.M.
  • No late exam will be accepted.
  • To Submit, Upload your exam file on the portal.

 

There are total of 35 points possible on this exam, split into three sections:

Part A: 9 Points.

Part B:26 Points.

Make sure you complete all questions on the exam.

Good luck!

Student Information:

Before Starting Your exam make sure that you fill your information provided in the box below.

Student Name:  
Student ID Number:  

Questions Grades:

Question Number Grade
Part A  
Part B  
Total Grades  

 Part A: Case Study Analysis.

Enron Case Analysis:

The business world is full of conflicts of interest.One particularly famous example of this conflict is that of Enron.The collapse of energy giant Enron in 2001 showed how catastrophic this conflict can be.The company’s officers and board of directors, including Chairman Kenneth Lay, CEO Jeffrey Skilling and CFO Andy Fastow, were selling their Enron stock at higher prices due to false accounting reports that made the stock seem more valuable than it truly was. After the scandal was uncovered, thousands of stockholders lost millions of dollars as Enron share values plummeted.Let us take a look at the full story of Enron’s fall. Enron’s directors had a legal obligation to protect and promote investor interests but had few other incentives to do so. But many analysts believe the company’s board of directors failed to carry out its regulatory role in the company and rejected its oversight responsibilities, causing the company to venture into illegal activity. The company went under following an accounting scandal that resulted in billions of dollars in losses.

Enron was, at one point, one of the largest companies in the United States. Despite being a multi-billion-dollar company, Enron began losing money in 1997. The company also started racking up a lot of debt. Fearing a drop in share prices, Enron’s management team hid the losses by misrepresenting them through tricky accounting—namely special purpose vehicles (SPVs), or special purposes entities (SPEs)—resulting in confusing financial statements.

The problems started to unfold in 2001. There were questions about whether the company was overvalued, leading to a drop in share prices from over $90 to under $1. The company ended up filing for bankruptcy in December 2001. Criminal charges were brought up against several key Enron players including former chief executive officer (CEO) Kenneth Lay, chief financial officer (CFO) Andrew Fastow, and Jeffrey Skilling, who was named CEO in February 2001 but resigned six months later.

After reading the case, answer the following questions:

  1. After reading the previous caseand depending on what we have studied during our course, what is the problem that leads to the fall of Enron company?Provide an explanation for this problem.
  2. After reading this case and from your own point of view, how this problem affects Enron company?
  3. During our course, we have showed several ways that can solve this problem. Mention these ways that can be used by any organization to prevent this problem which at the end may lead to the failure of the organization.
  4. During our course, we talked about different ways modern corporations can use to solve this problem, if you are in a role of responsibility do you recommend extraways other than the ways we mentioned in our course, we can use to solve this problem? (Bonus Question).

Answer sheet for Part A.

Part B: Practical Analysis.

Treasurer and Controller Case Analysis:

L’ORÉALhas just ended the calendar year making a sale in the amount of €35,000,000 of merchandise purchased during the year at a total cost of €20,000,000 (70% paid in full under supplier terms). Although L’ORÉAL makes sales of €35,000,000, but 80% of these sales still uncollected.

Answer the following Points:

  1. Contrast the differences in performance under the accounting method versus the cash method.
  2. Differentiate between the Accounting method and cash method “Accrual Method Vs. Cash Method”.
  3. One of the most important department in any organization, is the finance department which includes the treasurer and controller. Provide the difference between treasurer and controller.

Time value of money. Risk and Return Case Analysis:

*Section 1:After a year like 2020, it is no surprise that PC makers such as Dell Technologies are getting off to a quick start in 2021. Last year saw massive demand for PCs and monitors as much of the workforce shifted to working from home. In particular, demand surged for laptops as workers sought a mobile solution for computing within different rooms of the home. As 2021 gets underway, Dell is unveiling an array of new business PCs—both Latitude laptops and OptiPlex desktops–along with new monitors aimed at video conferencing. Key themes of the new devices include a focus on collaboration and productivity for the remote workforce. There are seven big Dell product launches being announced ahead of CES 2021.

Ahead of CES 2021, Dell Technologies is unveiling its new Latitude 9420 notebook, available both as a 2-in-1 or a clamshell model. The notebook will include a 14-inch display with FHD+ resolution (clamshell model) or QHD+ resolution (for the 2-in-1 model), as well as a 16:10 aspect ratio to offer a 5-percent larger viewing area and brightness of 500 nits. The clamshell version has a starting weight of 2.9 pounds and a thickness of just 0.55 of an inch.​ In terms of connectivity, the Latitude 9420 will offer optional support for high-speed 5G or LTE, along with WiFi 6. Key collaboration features include a built-in speakerphone, dedicated mute and mic keys, and an enhanced webcam with capabilities for background blur and automatic light correction.

Other key features include ExpressSign-in 2.0–which leverages Intel Visual Sensing Technology to enable faster auto-wake and auto-lock–and the AI-powered Dell Optimizer, which enhances app performance through learning the way that each individual user works. Meanwhile, on security, the Latitude 9420 also offers what Dell is calling the “industry’s first automatic webcam shutter,” which “knows when to automatically open or close by syncing with your video conferencing applications,” the company says. It is expected to be available in spring 2021.

This Project will cost $36,000,000.

The following are the estimated cash inflow for this project:

Year Estimated Cash Inflow
1 29,400,000
2 29,000,000
3 28,500,000
4 28,000,000
5 27,300,000
6 38,200,000

Taking into consideration that the lifetime of this investment is 6 years. Required rate of return, is 14 percent. Depending on the criterion of TVM, do you recommend Dell to expand its investment by creating the new Latitude 9420 notebook?

*Section 2:Suppose that Dell has another opportunity to expand its projects.  This expansion is called “Dell UltraSharp 40 Curved WUHD Monitor (U4021QW)”.For even greater display space, the forthcoming Dell UltraSharp 40 Curved WUHD Monitor will offer a 40-inch display with a 2500R curve and resolution that goes beyond 4K (5,120 x 2,160). The screen also reduces blue light with Dell’s ComfortView Plus technology and offers up to 300 nits of brightness. Key features of the new UltraSharp 40 Curved monitor include the ability to connect two PCs to the monitor at a time, allowing users to switch between the two PCs or work on both simultaneously, as well as integrated dual 9W speakers.After investigating the possible outcomes, the company made the estimates that will be shown in the table provided below:

  Probability New Latitude 9420 notebook Dell Ultra Sharp 40 Curved WUHD Monitor (U4021QW)
Initial Investment 100% $36,000,000 $40,000,000
Actual Return
Pessimistic 20% 21% 17%
Most Likely 45% 36% 36%
Optimistic 35% 29% 35%

Depending on the provided information, Make an analysis for Dell, on the following points: 1. Expected value for each expansion, 2. Standard Deviation for each expansion and 3. Coefficient of variation of each project. Then provide a recommendation for Dell, on which expansion Dell, has to choose.

*Section 3:As we see in our course, there are different criteria affecting our investment decision. From these criteria “Time value of money” and “Risk and Return”. Express using you own way, how these two criteria can affect your investment decision making. (In points Mention how time value of money affect your investment decision, them mention the relationship between risk and return and then mention how this relationship can affect your investment decision).

Answer sheet for Part B.