Instructions

To complete this workbook, answer the questions on each worksheet.

McCormick & Company is considering building a new factory in Largo, Maryland. James Francis, a land owner, is se
of industrial zoned land with a listed sale price of $3,000,000.00 for the land. McCormick & Company is interested
another manufacturing company. The competing manufacturing company has made a full offer of $3,000,000.00 fo
& Company knows they can make an offer to outbid the competitor to obtain the land. So, McCormick & Company
$4,424,000.00 to obtain the land.

Now, the land owner, James Francis, must make a decision between the two competing offers. To make this decisio
identify the Future Value (FV) of each offer. James's bank is offering a 12 percent (12%) interest rate when invested
managed growth stock portfolios. Let's help James make his decision by answering the following questions using th
right.

1. What is the Future Value (FV) of each offer?

2. Based on your Future Value calculations, which offer should James accept?

McCormick & Company has decided in order for the company to have a minimal impact on current cash flows, the
borrow seventy percent (70%) Loan to Value (LTV) of the $4,424,000.00 offer in the form of a commercial acquisitio
loan to purchase the land. This means McCormick & Company will need to make a thirty percent (30%) down paym
commercial acquisition and development loan. McCormick & Company is considering three different loan options:

Loan A: 20-year loan with a fixed annual interest rate of 6 percent

Loan B: 10-year loan with a fixed annual interest rate of 4.5 percent
Loan C: 15-year loan with a fixed annual interest rate of 5 percent

3. How much of the total $4,424,000.00 offer will be financed?

4. Which loan will have the lowest monthly payment?

5. Which loan will have the lowest total payback amount?

6. Would you recommend McCormick & Company select the loan with lowest monthly payment or lowest total pay
mes Francis, a land owner, is selling a 4.35 acre parcel
mick & Company is interested in the land and so is
a full offer of $3,000,000.00 for the land. McCormick
d. So, McCormick & Company decided to offer

ng offers. To make this decision, James should first

%) interest rate when invested through the bank-
he following questions using the template to the

1 N I/Y

act on current cash flows, the company will need to

orm of a commercial acquisition and development
irty percent (30%) down payment to secure the 2 N I/Y
g three different loan options:

3 Principal Percent Down

4 Loan N
Loan A
Loan B
Loan C
ly payment or lowest total payment and why?
5 Loan N
Loan A
Loan B
Loan C

6
 PV PMT FV

PV PMT FV

Amount Financed

I/Y PV PMT

I/Y PV PMT Total Paid

Now that McCormick & Company has secured the land for the new factory through a loan, now it is time to constru
factory. Instead of using operating cash flow to fund the construction of the new factory, McCormick & Company h
to raise capital. To raise additional capital the company is considering issuing additional shares of stock. For McCor
Company to determine how much it will cost the company to issue stock, the company must determine the expect
on the stock in relation to the systematic risk. We can help McCormick & Company with this by answering the follo
questions using the provided information below:
McCormick & Company uses the 10-Year Treasury Constant Maturity Rate as the risk-free rate. As of 7/1/2019, this
according to the U.S. Treasury.
McCormick & Company has disclosed the company's levered Beta is 0.60 (MarketWatch, 7/1/2019).
McCormick & Company has disclosed the company's expected return on the market is 8.03%

To answer the following questions, please use the template to the right.

1. What is McCormick & Company's expected return on the issuance of stock using CAPM?

In the CAPM, we examined the expected return on the market as a whole. In an effort to estimate the expected ret
McCormick & Company's stock, we will use the Dividend Discount Model (DDM). We can help McCormick & Comp
this by answering the following questions using the provided information below:

McCormick & Company's expected dividend per share next year is $2.28
McCormick & Company's expected dividend per share constant growth rate is 8.70% (as of May 2019)
McCormick & Company's stock price per share was $155.70 on 7/1/2019

2. Using the Dividend Discount Model (DDM), what is the cost of equity?
To find the cost of equity using DDM, we take the original equation
and rearrange the equation:

𝑃= 𝐷𝑖𝑣/(𝑅_𝑠
−𝑔)
𝑅_𝑠= 𝐷𝑖𝑣/𝑃+𝑔
a loan, now it is time to construct the new
ory, McCormick & Company has decided
nal shares of stock. For McCormick &
ny must determine the expected return
with this by answering the following

-free rate. As of 7/1/2019, this was 2.03

tch, 7/1/2019).
is 8.03%

APM?

rt to estimate the expected return of

can help McCormick & Company with 1 ( 𝑅) ̅ = 𝑅_𝐹 + 𝛽 × (𝑅 ̅_𝑀 − 𝑅_𝐹)

% (as of May 2019)

2
Questions

1. Liz has retiring from the U S Postal Service and will turn 70 next year. After 39 years of service, her monthly pen
qualify for Social Security. Liz has accumulated $700,000 in her thrift savings plan. The government requires that
move it to a IRA. All of the money is pretax and tax can be avoided if it is moved to the IRA. The annuity will be ca
expectancy of 17.5 years after age 70. https://www.ssa.gov/cgi-bin/longevity.cgi. The current US Treasury Long t
much will she get as an annuity monthly payment? Should Liz take the annuity or move the money to the IRA.? T
she take out 4% of the amount each year.

2. Kathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR. She and her hus
in Garrison, MD and their budget is $500,000. They have $100,000 for the down payment and McCormick will pa
considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%. Calculate the monthly pa
and insurance will add $1,000 per month to which ever mort
get they choose. What should Kathy and Stan do?
 Answer Questions 1 and 2 here. Show your calculations.

of service, her monthly pension is $7,500. She does not 1

government requires that she convert it to an annuity or
IRA. The annuity will be calculated based on her life
current US Treasury Long term bond rate is 3.0%. How
e the money to the IRA.? The Tax regulations require that

or of HR. She and her husband Stan plan to buy a house

ent and McCormick will pay for closing costs. They are
. Calculate the monthly payment for each. Property taxes
2
e. Show your calculations.