Fixed Income Securities - Assignment Example

 FIXED INCOME SECURITIES Question 1: a) The organization’s total debt as at February 2001 is found by adding all the long-term debts with the short-term debts. The long term debts is found by adding the non revolving term facilities and the revolving term facilities whereas the short term debts are depicted from the senior subordinated loans. Therefore, the total long-term debts of the company will be calculated as follows: Item U.S $ Fiscal in C.A.D $ Long term debts 243+243 1.51x 243= (366.93)x2=733.86+450+25+25= 1.23386B Short term debts - CAD $525M Total debts - CAD$ 1.78B Question B: To find the interest expense, we have to include the amortization of the deferred financial costs and the amortization of the deferred foreign fiscal translation adjustments that relate to the amortization, as at February 2001 was U.S $ 53,400. Monetary 2001 interest expense also comprises a noncash charge of U.S $ 15 million following a write off of the delayed financing expenses related to the repayment of the corporation senior subordinated facility. These savings are partially offset by the fact that the first 30/365 days of the monetary 2000 did not include any interests expense in respect of financing the acquisition of shoppers Drug mart inc, which was completed in February 4 2000. Therefore, the interest expenditure for the total amount of facilities for the period from the date of the close of the deal (February 6, 2000) to the period ended February 6, 2001) is USD $ 115 million. Question c: Below is the agency’s consolidated balance sheet as at February 6 2001 and a statement of earnings for the same period. These financial statements show the responsibility of the respective corporate management. Consolidated Balance Sheet Assets As at February 6th, 2001 CURRENT Accounts receivable $311,273 Inventory $242,878 Prepaid expenses $2,597 Future income taxes $6,971 566,719 Long term receivables $99,218 Capital assets $359,915 Deferred costs 83,789 Future income taxes $16,809 Good will and other intangibles 1,954,636 Total assets $3,086,086 Liabilities CURRENT Bank indebtedness $1,293 Accounts payable and accrued liabilities $478,492 Income taxes payable $42,337 523,122 Long term debt $1,108,545 Other long term liabilities $18,088 Total liabilities $1,651,755 Shareholders’ equity $1, 417,605 Share capital $14,726 Retained earnings $1,433,331 Total liabilities and share holders equity $3,086,086 Consolidated Statements of earnings Revenue operating expenses $ 3,634, 823 Cost of goods sold and other operating expenses $3,217,732 Depreciation and amortization $73, 223 Operating income $344,380 Interest expense $193,641 Earnings before income taxes and good will amortization $150,995 Income taxes current $59,547 Future $15,503 Earnings before goodwill amortization $76,457 Good will amortization $53,544 Net earnings $22,913 In making the combined fiscal statements compliance with Canadian in general, conventional accounting principles necessitates, management to make estimation and hypothesis that influence the reported amounts of resources, and liabilities with confession of dependent assets and liabilities at the time of the combined financial statements, and the accounted amounts of revenues and operating costs during the reporting phase. Considerable areas necessitating the use of organization estimates recount to the fortitude of impairment of assets, annuity and other worker benefits, valuable lives for paying back, income taxes and prospect income taxes, the salvation compulsion under the Company’s allegiance curriculum, and service fees. These estimates are amended occasionally to reveal present expectations. Results, as determined by actual proceedings, could be different substantially from the above estimates. Other than the mentioned sources of capital, Shoppers obtain a substantial share of Associate store earnings. The Agency’s share of Associate store earnings is reflective of its venture in, and obligation to, the functions of the Associates’ stores. The corporation collects its share of Associate store earnings all through the year by way of a service payment based on estimated store productivity. Service fees are accustomed based on the definite year-end outcomes of Associate stores, which have financial year-ends at unreliable dates all through the year. Shoppers work in Quebec under the Pharmaprix business name. Under Quebec act, earnings generated from the recommendation area or a pharmacist or a company in control of pharmacist may simply receive dispensary. Following these restrictions, the license accord in use for Quebec Associates varies from the Associate agreement used in other regions. Pharmaprix stores are an advantage from similar infrastructure and support offered to all Shoppers Associates. Question d: The following table shows the summary of the organization’s definite selected in service data and combined financial information from the year 1999 to the year 2003 Credit stats: Drug retailers EBIT EBITDA Return FFO Total debt Total debt CVS Corp. Interest coverage Interest coverage On capital Total debt EBITDA Capital 2003 3.4 3.9 16.3 23 2.9 52.5 2002 3.1 3.7 15.7 22.7 3.1 54.1 2001 3 3.7 15.6 22.3 3 55.8 2000 3.8 4.4 19.2 23.9 2.8 56.2 1999 4.3 5.1 19.9 31.8 2.3 51.1 The corporation has several sources of inquiring capital. Some include the cash offered by the operating activities and the money accessible from a committed rotating credit competence under the senior credit competence. At February 2001, $15.6 million of the rotating credit facility was used, all following the letters of credit and trade funding warranty. At February 2000, $ 19.2 million of this facility was used. This included the drawings from of $ 3.6 million following the letters of credit and trade funding warranty. Shoppers operating and investing activities are typically financed by cash flows generated from its operations. For the total debt capital, the operating activities generated $ 55.8 million compared to $ 56.2 million of the fiscal 2000. The comparative figures for fiscal 2000 exclude the impact of the February 2000 acquisition of SDMI, which was financed with the issuance of the common shares. The $0.4 million decrease is primarily attributable to the working capital impact of the company’s planning activities. The EBITDA interest coverage during fiscal 1999 was $5.1 million compared to $4.4 million of 2000. The majority of money at this period was invested in the company’s store network. Drug stores and other health care centers were opened. In the fiscal year 2003, the total debt EBITDA was $2.9 as compared to the $3.1 0f 2002. At this period, the company raised net proceeds through the sale of the shares. These funds, along with additional cash flows were used to repay the long-term debts, and the company’s senior subordinated loans. Therefore, in preparing the consolidated fiscal statement conventionality needs management to make approximations and hypothesis that influence the reported amounts of possessions, and liability and exposure of dependent property and liabilities on the date of the fiscal statements and the reported quantities of revenues and operating expense during the reporting period. Considerable areas requiring the use of administration estimates in relation to the impaired assets, retirement fund and other worker benefits, helpful lives for amortization, future income taxes and income taxes, the deliverance obligation under the Company’s devotion program, and service fees. These estimates should be revised occasionally to replicate present expectations. Shoppers believe that its present credit amenities, jointly with cash generated from in service activities, will be sufficient to fund the organization’s operations, investing activities and commitments for the predictable future. Question e: Consolidated Statements of earnings Revenue operating expenses $ 4,634, 823 Cost of goods sold and other operating expenses(EBIT) $4,217,732 Depreciation and amortization $73, 223 Operating income $1,344,380 Interest expense $193,641 Earnings before income taxes and good will amortization $150,995 Income taxes current $1,059,547 Future $1,015,503 Earnings before goodwill amortization $76,457 Good will amortization $1,053,544 Net earnings $1,022,913 EBITDA meaning the earnings received before interest, tax, depreciation and amortization shows a measure of a company's operating performance. Essentially, it is a method to appraise a company's presentation without having to cause in financing decisions, accounting choices or tax surroundings. EBITDA is calculated by adding back the non-cash operating costs of depreciation and amortization to an organization’s operating returns. To find this, EBIT, depreciation and amortization is added. Therefore, below is the EBITDA of shoppers drug Mart Company. EBIT= $ 4, 217,732 Depreciation and amortization= $73, 223 Total (EBITDA) = $ 4,290,955. Pro Forma financial statements are related to chronological financial statements in the emergence and use, except that they center on the future as an alternative of the past and are based upon hypothesis rather than reality. Chronological statements should be factual, concrete, and scientific while pro Forma statements permit management to implement a certain quantity of imagination and suppleness. Pro Forma statements mirror a lively environment in which change is still feasible, and a diversity of dissimilar alternatives can be followed. They take similar forms as historical statements, the most common being the balance sheet, income statement, and the statement of changes in the fiscal position. The constructions to be done on pro Forma statements bases on the detailed fiscal protuberance, and the past relationships between diverse income account statements and balance sheet financial records. A set of present financials serves as the basis on which the pro Forma will be fabricated. Alongside pro Forma statements, real statements from preceding phases will be displayed to ease comparison and analysis. The present fiscal accounts act like the starting points where adjustments are done to reflect the fiscal statements forecast for the period covered by the pro forma. Before making a final draft of the pro forma income statement, it is significant to have total sales and other returns forecasts, as well as total projections of industrialized costs, freight in, salaries and benefits, interest expenses, royalties, and operating expenses. Pro forma financial statements Actual results Estimated results EBITDA $4,290,955.00 $4,790,955 Long term debts $1,108,545 $1,001,108,545 Shoppers income before discontinued operations $1,344,380 $1,344,380 Shoppers operating cash $4,217,732 $4,217,732 Shoppers investing cash $500,000,000 $1,000,000,000 Interest expense $193,641 289,899 Net earnings $505,330,849 $2,953,768 The company will not be able to succeed with the deal. Actual net incomes being $ 505,330,849 and the estimated incomes being $2,953,768 therefore mean that the company would go on loss if it decided to go on with the deal. Question 2: This summary highlights chosen data concerning Bell Canada offering. It may not contain all of the data that may be significant to an individual in making decisions on the purchase of the notes. It includes the complementary prospectus and the documents included by reference in them before decide whether to purchase the notes. Issue size: The company is planning to sell the series-25 Debentures. Credit ratings: The credit ratings allocated to the notes are inadequate in scale, and do not attend to all material risks involving the venture in the notes, but somewhat reflect the outlook of every rating organization at the occasion the rating is issued. A clarification of the importance of its evaluation may be obtained from every evaluation organization. There can be no guarantee that the tribute ratings will stay in effect for whichever period of occasion or that an evaluation will not be lowered, perched or introverted entirely by an evaluation agency, if, in the rating organization’s judgment, conditions so justify. Organization credit ratings are not a suggestion to purchase, sell or cling to any security. Each agency’s evaluation should be assessed separately of any other organization’s rating. Actual or predictable changes or relegates in the credit ratings, together with any proclamation that the ratings are under supplementary review for a relegate, could influence the marketplace value of the notes and raise the company borrowing expenditures. Maturity date: June 18, 2019 Coupon rate: If a Coupon Rate is specific to the merchandise Terms and a Coupon sum needed to be calculated for an ending period excluding the date of the coupon payment, such Coupon Amount will be calculated basing on the number of days in the ticket Period. If the coupon rate applied to this period get specified, the interest rate that the computation manager decides would be relevant to a deposit of the insignificant Amount for the related period with a commercial bank determined by the computation manager at the applicable instant and the Coupon Rate date Count Portion. If Coupon Payment is specified in the merchandise Terms, the voucher sum shall be the only intermittent amounts allocated for Security, and no interest shall accumulate in reverence of the Securities. Use of Proceeds: The net proceeds of the contribution anticipated to being utilized for all-purpose corporate purposes, together with the refund of outstanding commercial paper. The gratitude was acquired for general business purposes, and financing a fraction of the cost of BCE’s possession of Astral Media, which anticipates closing in the mid of the year 2014. Guarantor: The guarantors are two register Canadian venture merchants selected by the trustee and accepted by Bell Canada One covenant: Go into certain amalgamation, transfers and consolidations of considerably all of the organization’s assets. One risk: The notes are not protected by any of the company’s property. The terms of the agreement authorize us to incur quantity of secured indebtedness exclusive of securing the notes. If the organization turns out to be bankrupt or liquidated, or if paid on any of the accords overriding any protected debt is hastened, the lenders under the company’s secured debt agreements will be entitled to implement the remedies obtainable to a secured lender. Consequently, the secured lenders will have a preceding claim on the organization’s property assets to the degree of their liens, and it is likely that there will be inadequate assets outstanding from which claims of the possessors of these notes can be contented. In the beginning date of this prospectus supplement, the company does not have significant amounts of protected indebtedness Within thirty days following the date upon which the Change of Control Triggering Event takes place or at the agency’s option, the corporation will send, by fast mail, a notice to every owner of the notes setting forward the agency’s offer to buy the notes, specifying the acquisition date. This will be no earlier than thirty days or later than sixty days starting from the date the notice is mailed, unless if not needed by law. If mailed earlier to the period of the change of control, the notice will affirm that the tender is subject to achievement of the change in control. Holders electing to advertise their notes will be obligatory to submit their notes in agreement with the proffer, to the paying manager at the address to be particular in the notice, or relocate their notes to the paying manager through book-entry move, prior to the closure of dealing on the third day before the payment date. Law may restrict the allocation of this prospectus supplement and the associated prospectus together with the submission of the notes in some jurisdictions. This supplement and the associated prospectus do not make up an offer, or an invite on the company’s behalf or the underwriters or whichever of them. Therefore, to pledge or buy any of the notes, securities may not be employed for or in association with a proffer by any individual, in any command in which such a proffer or solicitation is not sanctioned to anybody to whom it is prohibited to make such an offer or solicitation. Question 3: The following is the amortization schedule of the Canadian place seeking to refinance its existing $300 million mortgage bonds that are coming due with a new issue of 5-year first mortgage. We are given the principle amount to be $ 300 million and, therefore, we have to find the amount to be paid after a period of five years ends. In addition, the rate of interest has been given to be 5.5 percent paid semi annually. This means that the annual payments will be done twice. The periodic interest rates would be half the annual interest rates given. Below is the summary of the amortization schedule. Principle borrowed $300,000,000 Annual payments 2 Regular payment amount $65,039,496 Total payments 5(2.5 years) Interest on payments $ 8,250,000 Annual interest rate 5.50% Total repaid $325,197,480 Periodic interest rate 2.75% Total interest paid $25,197, 480 Total interest paid as a percentage of principle 8.399% Amortization Schedule Pmt Principle Cum principle Interest Cum interest Principle Bal 1 56, 798,496.06 56,789,496 8,250,000 8,250,000 243,210,503.94 2 58,351,207 115,140,703 6,688,288.86 14,938,288.86 184,859,296.74 3 59,955,865.40 175,096,569 5,083,630.66 20,021,919.52 124,903,431.34 4 61,604,652 236,701,220.36 3,434,844.36 23,456,763.88 63,298,779.64 5 63,298,780 300,000,000 1,740,716.44 25,197,480.32 0.00 This process of calculating interest basing the remaining balance keeps on until the mortgage is fully settled. Therefore, for every semiannual payment, the amount of interest keeps on declining and the amount that goes to pay the loan rises. After all payments intended for the mortgage will be fully settled. It is also very vital to know that the calculations I have done do not include any other costs like property taxes, closing costs or the mortgage insurance. Works Cited Chaput, Luc. Project Design: Strategic Informations: A Process Approach. USA, NJ: PUQ, 2011. . . Read More