1.

Bond Selection

Review Chapter 5 Closing Case on pages 166-167. In at least 200

words, fully answer questions 6 and 7 from that case. Be sure to fully
and carefully explain your answer.

FINANCING EAST COAST YACHTS EXPANSION PLANS WITH A BOND

ISSUE

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

6. Are investors really made whole with a make-whole call provision?

7. After considering all the relevant factors, would you recommend a
zero coupon issue or a regular coupon issue? Why? Would you
recommend an ordinary call feature or a make-whole call feature?
Why?

2. International

Review Chapter 20 Closing Case on page 662. In at least 200 words,

fully answer question 5 based upon the presented material and the
answers from the four previous questions from that case. Be sure to
fully and carefully explain you answer.

EAST COAST YACHTS GOES INTERNATIONAL

Larissa Warren, the owner of East Coast Yachts, has been in

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

Larissa is confident the company can handle the extra volume with its
existing facilities, but she is unsure about any potential financial risks
of selling its yachts in Europe. In her discussion with Jarek, she found
that the current exchange rate is $0.73/. At this exchange rate, the
company would spend 70 percent of the sales income on production
costs. This number does not reflect the sales commission to be paid to
Jarek.

Larissa has decided to ask Dan Ervin, the company’s financial analyst,
to prepare an analysis of the proposed international sales. Specifically,
she asks Dan to answer the following questions:

1. What are the pros and cons of the international sales plan? What
additional risks will the company face?

2. What happens to the company’s profits if the dollar strengthens?

What if the dollar weakens?

3. Ignoring taxes, what are East Coast Yachts projected gains or losses
from this proposed arrangement at the current exchange rate of
$0.73/n? What happens to profits if the exchange rate changes to
$0.80/n? At what exchange rate will the company break even?

4. How could the company hedge its exchange rate risk? What are the
implications for this approach?

5. Taking all factors into account, should the company pursue

international sales further? Why or why not?
 Final Project

Focus of the Final Project

Submit a paper on one of the major topics listed below:

 IRR v. MIRR Valuation Methods

 Use of Real Options Theory in Financial Management/Modeling
 Debate the Theories of Accounting for Stock Options
 Use of Derivatives in Risk Management
 Use of SCM as a Method of Inventory Control

The paper must (a) identify the main issues in the chosen area, (b) new
learning that has occurred, (c) class activities or incidents that facilitated
learning and understanding, and (d) specific current and/or future
applications and relevance to the workplace. The emphasis of the paper
should be on application of new learning.

Writing the Final Project Paper

The Paper:

 Must be eight double-spaced pages in length and formatted according to APA

style as outlined in the approved APA style guide. Title, reference, and any
exhibits or appendices are not counted in the paper length.
 Must include a cover page that includes:
 Student’s name
 Course name and number
 Name of paper
 Instructor’s name
 Date submitted
 Must include an introductory paragraph with a succinct thesis statement.
 Must address the topic of the paper with critical thought.
 If possible, provide a context of a first-person experience where you saw
this academic concept in operation. Do not simulate third-party statements
of experience.
 Readdress the concept and the experience with critical thought. That is,
what is your response to the content, either positive or negative, and then
defend your position. If multiple options/alternatives/positions are present
and are being rejected you must also defend the reasons for rejecting an
option.
 Must conclude with a restatement of the thesis and a conclusion paragraph.
 Must use APA style as outlined in the approved APA style guide to document all
sources.
 Must include, on the final page, a Reference List that is completed according to
APA style as outlined in the approved APA style guide.