3-1 Final Project Milestone One: Client Analysis Business & Finance homework help

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FIN 340 Final Project Scenarios and Tables

You will use these scenarios and tables to complete the final project.

Client 1:

Ezra, age 26, is single. However, he is dating and preparing to get engaged. He will need roughly $5,000 for an engagement ring almost immediately, and expects he will need $10,000–$15,000 for the wedding in the next 12–24 months. He is currently employed and earns about $70,000 a year in salary. This salary is enough to cover all his taxes and normal living expenses of approximately $4,800. This leaves him with about $1,000 in savings each month ($350 to 401K, $650 to savings). He has been able to save roughly $15,000 to date in a 401K plan from work and about $20,000 in cash savings. His 401K plan has been invested 100% in the stock market, including some sector-specific funds. His other savings have been in interest-bearing savings and cash substitutes such as money market funds. He recently received a windfall of $60,000, and this prompted him to come to you for some advice. The following are few of Ezra’s comments to help guide your thoughts:

“I understand I am young, so I need to take on as much risk as I can.”

“I am willing to lose 30–40% on my invested capital if the return is commensurate.”

“I do like to have a decent sized cushion in the bank in case something happens at my job.”

“I don’t foresee my risk tolerance changing after I get married.”

“Do you have any good stock tips?”

Client 2:

Jacob and Rachel, 53 and 52 respectively, are married with four children. Two of the children are currently in college, and two are in high school. They expect the other two children to attend college. The couple has done relatively well for themselves and earn roughly $275,000 before tax between the two of them, which equates to $190,000 after taxes. They live well below their means, and this should allow them to cover all of their children’s college expenses out of pocket, but it will not leave much for them to save over the next six to eight years. Through savings and portfolio growth, they have managed to accumulate $900,000. To this point, they have been moderately aggressive (70–75% equities) with their portfolio, but they feel that they need to begin preparing the portfolio for partial retirement in eight years, and full retirement in 13 years.

1. “I know we still need to be somewhat aggressive—we could live until we’re 90—so we need to plan for some growth even in retirement.”

“We definitely can’t afford to take a big hit in our portfolio. We don’t have enough time to recover.”

“Our jobs allow us to work part-time in retirement, and we will probably do so as long as we are able.”

“What do bond yields look like today?”

“I think we’ll need to draw on 3–5% of our portfolio in retirement. We’d like to earn enough income from the portfolio to cover that.”

CAPM Inputs:

Market Return 9%

Risk-free Rate 0.75%

Stock Analysis Table:

Symbol

Estimated Beta

Dividends

Earnings

Sales

Free Cash Flow

5-Year Dividend Growth

Average Industry P/E Ratio

Average Industry P/S Ratio

Free Cash Flow Growth

IBM

0.86

Use Last Year

Use Last Year

Use Last Year

Use Last Year

13.7

23.7

1.12

2.60%

KO

0.66

Use Last Year

Use Last Year

Use Last Year

Use Last Year

8.3

22.6

2.2

6.50%

BMY

0.78

Use Last Year

Use Last Year

Use Last Year

Use Last Year

2.9

24.4

3.37

N/A

ORCL

1.1

Use Last Year

Use Last Year

Use Last Year

Use Last Year

21.1

20.5

4.45

10%

MMM

0.98

Use Last Year

Use Last Year

Use Last Year

Use Last Year

15.1

23.8

2.59

7%

BAX

0.75

Use Last Year

Use Last Year

Use Last Year

Use Last Year

-16.9

36.09

3.68

N/A

BIG

1.04

None

Use Last Year

Use Last Year

Use Last Year

N/A

23

1.12

N/A

NFLX

1.57

None

Use Last Year

Use Last Year

Use Last Year

N/A

52.5

6

N/A

AKAM

1.34

None

Use Last Year

Use Last Year

Use Last Year

N/A

41.8

3.58

17%

GE

1.12

Use Last Year

Use Last Year

Use Last Year

Use Last Year

9.7

23.8

2.59

N/A

Available Assets Table: Stocks listed in Analysis Table and these additional assets

Symbol

Estimated Beta

Standard Deviation

SPY

1

13%

IWM

1.15

16.50%

EFA

1.03

15%

EEM

1.09

20%

SHY

0

1%

IEF

-0.2

6%

TLT

-0.48

13%

LQD

-0.02

5.25%

HYG

0.38

7.50%

Ex-post Return Statistics:


Symbol


Holding Period Return

Standard Deviation

 

Benchmarks

Holding PeriodReturn

Standard Deviation

IBM

8%

20.00%

Growth

9.6%

13.1%

KO

6%

13.00%

Capital Appreciation

8.1%

8.6%

BMY

13%

28.00%

Income

7.7%

7.2%

ORCL

2%

16.00%

Capital Preservation

5.8%

5.2%

MMM

6%

14.00%

BAX

-6%

16.00%

BIG

13%

32.00%

NFLX

18%

45.00%

AKAM

21%

37.00%

GE

10%

16.00%

SPY

9%

11.00%

IWM

14%

18.00%

EFA

9%

15.00%

EEM

-1%

19.00%

SHY

1%

1.00%

IEF

4%

6.00%

TLT

4%

13.50%

LQD

7%

6.00%

HYG

8%

8.00%

FIN 340 Final Project Scenarios and Tables

You will use these scenarios and tables to complete the final project.

Client 1:

Ezra, age 26, is single. However, he is dating and preparing to get engaged. He will need roughly $5,000 for an engagement ri

ng

almost immediately, and expects

he will need $10,000

$15,000 for the wedding in the next 12

24 months. He is currently employed and earns about $70,000 a year in salary. This salary is

enough to cover all his taxes and normal living expenses of approximate

ly $4,800. This leaves him with about $1,000 in savings each month ($350 to 401K, $650

to savings). He has been able to save roughly $15,000 to date in a 401K plan from work and about $20,000 in cash savings. His

401K plan has been invested 100%

in the sto

ck market, including some sector

specific funds. His other savings have been in interest

bearing savings and cash substitutes such as money market

funds. He recently received a windfall of $60,000, and this prompted him to come to you for some advice. The

following are few of Ezra’s comments to help

guide your thoughts:

1.

“I understand I am young, so I

need

to take on as much risk as I can.”

2.

“I am willing to lose 30

40% on my invested capital if the return is commensurate.”

3.

“I do like to have a decent sized

cushion in the bank in case something happens at my job.”

4.

“I don’t foresee my risk tolerance changing after I get married.”

5.

“Do you have any good stock tips?”

Client 2:

Jacob and Rachel, 53 and 52 respectively, are married with four children. Two of th

e children are currently in college, and two are in high school. They expect the

other two children to attend college. The couple has done relatively well for themselves and earn roughly $275,000 before tax

between the two of them, which

equates to $190,00

0 after taxes. They live well below their means, and this should allow them to cover all of their children’s college expenses

out of pocket, but

it will not leave much for them to save over the next six to eight years. Through savings and portfolio growth,

they have managed to accumulate $900,000. To

this point, they have been moderately aggressive (70

75% equities) with their portfolio, but they feel that they need to begin preparing the portfolio for partial

retirement in eight years, and full retirement

in 13 years.

1.

“I know we still

need

to be somewhat aggressive

we could live until we’re 90

so we need to plan for some growth even in retirement.”

2.

“We definitely can’t afford to take a big hit in our portfolio. We don’t have enough time to recover.”

3.

“Our j

obs allow us to work part

time in retirement, and we will probably do so as long as we are able.”

4.

“What do bond yields look like today?”

5.

“I think we’ll need to draw on 3

5% of our portfolio in retirement. We’d like to earn enough income from the portfolio

to cover that.”

FIN 340 Final Project Scenarios and Tables

You will use these scenarios and tables to complete the final project.

Client 1:

Ezra, age 26, is single. However, he is dating and preparing to get engaged. He will need roughly $5,000 for an engagement ring almost immediately, and expects

he will need $10,000–$15,000 for the wedding in the next 12–24 months. He is currently employed and earns about $70,000 a year in salary. This salary is

enough to cover all his taxes and normal living expenses of approximately $4,800. This leaves him with about $1,000 in savings each month ($350 to 401K, $650

to savings). He has been able to save roughly $15,000 to date in a 401K plan from work and about $20,000 in cash savings. His 401K plan has been invested 100%

in the stock market, including some sector-specific funds. His other savings have been in interest-bearing savings and cash substitutes such as money market

funds. He recently received a windfall of $60,000, and this prompted him to come to you for some advice. The following are few of Ezra’s comments to help

guide your thoughts:

1. “I understand I am young, so I need to take on as much risk as I can.”

2. “I am willing to lose 30–40% on my invested capital if the return is commensurate.”

3. “I do like to have a decent sized cushion in the bank in case something happens at my job.”

4. “I don’t foresee my risk tolerance changing after I get married.”

5. “Do you have any good stock tips?”

Client 2:

Jacob and Rachel, 53 and 52 respectively, are married with four children. Two of the children are currently in college, and two are in high school. They expect the

other two children to attend college. The couple has done relatively well for themselves and earn roughly $275,000 before tax between the two of them, which

equates to $190,000 after taxes. They live well below their means, and this should allow them to cover all of their children’s college expenses out of pocket, but

it will not leave much for them to save over the next six to eight years. Through savings and portfolio growth, they have managed to accumulate $900,000. To

this point, they have been moderately aggressive (70–75% equities) with their portfolio, but they feel that they need to begin preparing the portfolio for partial

retirement in eight years, and full retirement in 13 years.

1. “I know we still need to be somewhat aggressive—we could live until we’re 90—so we need to plan for some growth even in retirement.”

2. “We definitely can’t afford to take a big hit in our portfolio. We don’t have enough time to recover.”

3. “Our jobs allow us to work part-time in retirement, and we will probably do so as long as we are able.”

4. “What do bond yields look like today?”

5. “I think we’ll need to draw on 3–5% of our portfolio in retirement. We’d like to earn enough income from the portfolio to cover that.”

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