The course project for PROJ598 consists of three parts, which provide familiarization to processes associated with contract and procurement management.

• Part 1 (PP1) of the Course Project focuses on the first section of the RFP and entails selecting one of the three RFP procurement cases listed under the PP1 section and using the PP1&2 – Course Project RFP template document in the Doc Sharing area to develop information to support section one of the RFP.
• Part 1 (PP2) of the Course Project entails completing the remaining sections of the RFP by developing a comprehensive document that could be submitted to a vendor.

• Part 3 (PP3) covers all of the TCOs but touches mainly upon textbook Chapters 9 through 12. You will be required to identify an opportunity through https://www.Fbo.gov and follow the instructions, which are located in the Doc Sharing section.

 

Assignment: PP1 and PP2 were designed to highlight TCOs A, B, C, D, and E. In terms of textbook coverage, PP1 dealt with material in Chapters 1 through 8. In contrast, PP3 covers all of the TCOs but touches mainly upon textbook Chapters 9 through 12. You will be required to identify an opportunity through https://www.Fbo.gov and follow the instructions which are located in the Doc Sharing section.

This project is to be prepared and submitted in accordance with the guidelines presented below.

Submission Details:

Please submit your PP3 document to the Week 6 Dropbox. Instructions could be found in the PP3 – Formal Proposal Submission in the Doc Sharing section.

Clarification Issues: As a service to everyone in the class, all questions of a clarification nature should be posted in the weekly Q & A  Forum during the week in which your question arises.

Grading: see scoring grid below.

Deadline: PP3 is due by the end of Week 6.

Submit your PP3 assignment to the Week 6 Dropbox.

Scoring:

Cost of equity or the rate of return that VISA’s shareholders ‘require’
In order to estimate the cost of equity for the company VISA, I need to obtain an estimate of the company’s ‘beta’ or systematic risk coefficient, on the annual rate of return on a risk-free investment, and on the expected rate of return on the ‘market portfolio’. You can easily find that information by going to the following web site: http://finance.yahoo.com and insert the name VISA. The beta of the company is reported on that web site. Click on the “key statistics” link on the left hand side of the screen to find the beta and other information.

First find out what is the present Yield to Maturity (YTM) on a US Government bond that matures in one year. That rate is the ‘risk-free rate’.

Next, it is customary to assume that the difference between the expected rate of return on the ‘market portfolio’ and the risk-free rate rate of return is about 7.0%. This is the expression [RM – RF] . So if for example the risk-free rate of interest is, say, 3% per year, than the expected rate of return on the ‘market portfolio’, RM, is 10%. So, multiply the ‘beta’ of VISA Company by 7.0%. That will be the equivalent of VISA’s βj [RM – RF] . Then add to that number the current yield to maturity on a US Government bond [see step (1) above].

The above procedure provides you with an estimate of the rate of return that the shareholders of VISA require on their investment. This rate is called the cost of equity of VISA.

After going through these calculations, PLEASE DESCRIBE IN DETAIL the following information:

1. Show your work you used to obtain the cost of equity for VISA company.
2. Is this cost of equity higher or lower than you expected? The average cost of capital for a firm in the S&P 500 is 10.2 percent. Would you think VISA should have a lower or a higher cost of capital than the average firm?
3. Look up the betas for some of the other companies compared to VISA Company. These are the companies that have a higher or lower discount rate than VISA Company. Using these betas, compute the cost of equity for these firms. How do they compare to VISA Company? Are you surprised that some firms have a higher or lower Cost of equity than VISA Company?
4. How would you go about finding the cost of equity using the dividend growth model or the arbitrage pricing theory for VISA? No calculations is actually needed to do this – just explain how you would go about doing these calculations and explain what kind of additional information you might need.

Title

P16-7 Multiple differences; calculate taxable income; balance sheet classification

Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:

1.Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.

2.Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012.

3.Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

Income Statement

Tax Return

Difference

2010

$20

$26

($6)

2011

20

35

(15)

2012

20

12

8

2013

20

7

13

$80

$80

$0

4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010

5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).

6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.

Required:

1.Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.

2.What is the 2011 net income?

3.Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.