...knowledge on some relevant information relating to the analysis of Johnson Control Capital Investment. Johnson Controls Inc. formerly known as Johnson Electric Service Company however changed its name, was founded in 1855 and is headquartered in Milwaukee, Wisconsin. Johnson Controls is a global diversified technology and industrial leading who serve customers in over 150 countries. Johnson Controls have 170,000 employees that create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric; and interior systems for automobiles ( ). This company is engaged in building efficiency, automotive experience, and power solutions business worldwide. Johnson Controls has been in a well-positioned over the course of their business cycle as well as the leader in all three of its business; the building efficiency segment, the automotive experience segment, and the power solutions unit. Studies have shown, this company has a long-standing policy of using cash to invest in growth through capital expenditures and acquisitions since management believes this is a better way to reward long-term shareholders compared to share repurchases ( ). Now the question comes up, how can Johnson Control make effectively decisions when it comes to capital investments in their business? Understand that capital investment are evaluate by different methods depending on the nature of the risk...
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...evaluates the investments by analyzing cash flows. Internal Rate of Return uses percentage that is similar to the rate of interest in comparing potential investments with other possible or existing kind of investments. The method involves dividing the expected profits from the potential investment by the expected expenditure in order to arrive at the rate of return. Evaluating capital investments is an essential task for Johnson Controls Inc. in order to understand the viability of its capital budget before venturing into the emerging markets. Evaluating investments helps the company determine if the investments in question are worthwhile. Johnson Controls Inc. may have many investment opportunities in the emerging market but it must measures the potential of each opportunity preferably in isolation and make comparison of each in order to select the a few or just one that maximizes the value of the firm and reduce the potential risk. For example, Johnson Controls Inc. might be trying to determine if venturing into the emerging market will require buying new equipment or using the existing ones. The company might also be interested in determining if there is need to invest in research and development before venturing into the emerging market with a new or existing product. The company can therefore supplement its traditional methods of evaluating investments (such as payback period) with Net Present Value (NPV) and Internal Rate of Return (IRR) as well as Multiple Techniques. ...
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...competitive environment that must make us to check thoroughly our traditional cost accounting and management control system. The most important cost accounting text books had been developed by 1925 is explained most the entire practices employed by firm today. Looking down on for the past 60 years, there’s a huge change in management nature and competition dimensions with a few innovation in the design, implementation of cost accounting and management control system. Then, it is not only applicable but important that we understand current practices that reflect on the latest demands for planning and control information, and evolve a research strategy to meet these demands. There are five section of the evolution of management accounting, namely ‘A Summary of Historical Development in Cost Accounting’, ‘Historical Development of Managerial Control’, ‘Development since 1925 in Cost Accounting and Managing Control’, ‘New Challenges for Cost and ‘Managerial Accounting Research’ and ‘New Directions for Management Control Research’. 1. A Summary of Historical Development in Cost Accounting Thomas Johnson has been traced the development of cost accounting and management control practices in US corporations. The history of the development of US corporations in Chandler had been built by this research. During the period 1850-1925 it is very important to know the cost and management control information to support the gain business of transportation, production and distribution. Littleton, Solomans...
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...Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments.[1] Financial regulators, such as the UK's Bank of England (BoE) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties. Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public.[2] There are many thousands of such systems, most serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, and government departments. Physically the systems are hosted all over the world, though they tend to be concentrated in financial centres like London, New York, and Hong Kong. Capital markets are defined as markets in which money is provided for periods longer than a year.[3] A key division within the capital markets is between the primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors, often via a mechanism known as underwriting. The main entities seeking to raise long-term funds on the primary...
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...stages developed over a 3-year period (if all operations are met with material success). Should BGG Development, LLC be successful in executing its business model, the expected result will be a near-term net profit pool of approximately $6.2 million and BGG Development, LLC will be seeking to acquire approximately $1.2 million in pre-construction phase capital financing to address this business opportunity. To these ends, the company is providing this proposal for the purposes of entertaining discussions with qualified institutions, businesses and accredited investors regarding the potential investment preferences. This document is not an offer to sell securities of any kind, nor does it constitute a guarantee or warranty as to future performance of any kind. This Document is For Discussion Purposes Only. Northeast Houston Senior Housing Project Development Financing Proposal Pre-Development Phase Funding Round Capital Funding Proposal Notifications This document contains proprietary intellectual property and information created by BGG Development, LLC. This propriety information represents a substantial ongoing investment made by BGG Development, LLC for the express purpose of furthering its business goals. This document...
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...TO: Mr. Jones, Client FROM: Tax Professional DATE: June 12, 2011 SUBJECT: Tax Advice Several organization options were presented. Each option is presented below with the most optimal course of action, from a tax perspective. Each option has various tax benefits and drawbacks. The options will be evaluated independently. The option of outright purchase of Smithon will be evaluated first, followed by the options of merging or acquiring Smithon. 1a.) Should Mr. Jones purchase the stock of Smith outright, leaving Smithon intact? What about issuing debt in his Johnson Services company to pay for the Smith company – would that raise debt to equity issues? Purchasing the stock of Smithon outright, leaving it intact, would qualify as a Type B reorganization. Johnson Services would transfer some of their voting stock to the Smithon shareholders. Johnson Services would be required to have at least 80 percent of the total combined voting power and 80 percent of each class of nonvoting stock. (Rev. Rul. 59-259, 1959-2 CB 115). As to Mr. Jones’ question about issuing debt, there are advantages to issuing debt to raise funds. The interest payments are deductible to the corporation. However, the IRS may reclassify debt instruments as equity, using the doctrine of substance over form. There are five factors that may be considered when evaluating debt or equity classifications: 1) Does the instrument contain an unconditional promise to pay on demand or on a specified...
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...Introduction RJR Nabisco LBO in 1988, a deal valued at $25 – billion US was well known as the largest company leverage buyout that ever happened in history which marked the end of 1980 decade of greed (Olive,1999). It was also viewed as the deal that was too big, too loud and too out of control (Burrough, 1999). The story was started when the market price of the company’s common stock was considered by the CEO of RJR Nabisco, F. Ross Johnson to be wildly undervalued and did not reflect its true value (Burrough & Helyar, 2009). When the share price of the company stayed at $56 per share, Johnson decided to take on a LBO of RJR Nabisco so that the market price of the stock could be increased (Ruback, 2006). Johnson then cooperated with Shearson Lehman Hutton as one of the candidates that participated in RJR Nabisco buyout (Bruner, 2004). RJR Nabisco has shown to become an attractive candidate for LBO. It is proved by the participation of some large companies such as Kohlberg, Kravis, Roberts and Co. (KKR), First Boston and Forstman Little that attracted to participate on the bid (Ruback, 2006). The various characteristics of the RJR Nabisco such as steady growth, minimum capital investments and also the small range of debt (Michel & Shaked, 1991) have made the company being targeted for good reputation and personal wealth (Ruback, 2006). The bidding process has undergone several steps. There were various factors and considerations that need to be made by the board of...
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...Jones From: Date: 9/16/2012 Re: Questions for the purchase or merger of Smithon Manufacturing Purchase of Smithon Stock: a. Should Mr. Jones purchase the stock of Smith outright, leaving Smithon intact? What about issuing debt in his Johnson Services company to pay for the Smith company – would that raise debt to equity issues? Treasury Regulation Subchapter A, Sec. 1.368-2T states that all of the assets (other than those distributed in the transaction) and liabilities (except to the extent satisfied or discharged in the transaction) of each member of one or more combining units (each a transferor unit) become the assets and liabilities of one or more members of one other combining unit (the transferee unit). With the purchase of Smithon, you will be responsible for any current and future tax liabilities of that corporation along with the responsibility of day to day operations. Since you are purchasing the company and inheriting all tax liability it is not in your best interest to purchase the stock and leave Smithon intact and would just be more costly as you are responsible for the tax liability either way due to the purchase. The issuing of debt in the Johnson Services company would definitely raise debt to equity issues. Johnson Services Company is already having difficulty and has incurred significant losses and the issuance of more debt would only place more of a hardship on the company. Also, if a company has to high of a debt to equity ratio it will look unattractive...
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...This is the most common form of doing business in the United States ( Terence Lau and Lisa Johnson, 2015) | Two Advantages | There are many advantages to this type of business. First it is easy to create a sole proprietorship. The entrepreneur in charge simply starts the business. Another advantage is autonomy. The owner is able to decide what they want to do with the business, concerning hours, rules, and regulations and decide all of the factors needed to run the business. ( Terence Lau and Lisa Johnson, 2015) | Two Disadvantages | There is also some disadvantages to a Sole Proprietorship. Firstly there can only be one owner, so it is not possible to bring other in to the business. If the owner dies, then the business dies as well. Another disadvantage is raising the working capital for the business, especially to start the business. Without the capital it is difficult to expand the business and produce profits (Terence Lau and Lisa Johnson, 2015). | Liability | In a sole proprietorship the liability feature is an unlimited liability. This means that there is no different between the owner and the business, so the owner is liable for all of the debts and obligations of the business. If the owner runs into financial difficulties, he or she is personally liable to pay these finances. All of the personal assets of the owner are reachable by creditors (Terence Lau and Lisa Johnson, 2015). | Income taxes | There is no legal distinction between the owner and the business...
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...Professor of Finance, MIT Sloan School of Management The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. 2 —Simon Johnson, Professor of Entrepreneurship, MIT Sloan School of Management, Former Chief Economist, IMF On October 9, 2007 the Dow Jones Industrial Average set a record by closing at 14,047. One year later, the Dow was just above 8,000, after dropping 21% in the first nine days of October 2008. Major stock markets in other countries had plunged alongside the Dow. Credit markets were nearing paralysis. Companies began to lay off workers in droves and were forced to put off capital investments. Individual consumers were being denied loans for mortgages and college tuitions. After the nine day U.S. stock market plunge, the head of the International Monetary Fund had some sobering words: “Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” 3 1 2 3 Interview with the case writer, April 10, 2009. Simon Johnson, “The Quiet Coup,” The Atlantic, May 2009. “IMF in Global ‘Meltdown’ Warning,” BBC News, October 12, 2008. This case was prepared by Cate Reavis under the supervision of Deputy Dean JoAnne Yates. Copyright © 2009, Massachusetts Institute of Technology. This work is licensed...
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...You Decide: 1. Outright purchase of Smithon stock: a. Should Mr. Jones purchase the stock of Smith outright, leaving Smithon intact? What about issuing debt in his Johnson Services company to pay for the Smith Company – would that raise debt to equity issues? NO, Mr. Jones should not buy the stock. A stock purchased would result in Mr. Jones acquiring the assets, liabilities and also would inherit the contractual obligations of the selling corporation. I would not advice Mr. Jones to buy the stock because he will be liable for any current and future tax obligations that the selling corporations had before sale. The tax basis of the selling corporation will not change and the tax aspects will also remain the same. The methodology and tax year will not change which means that Mr. Jones cannot change the financial period to end in December 31. Failure to change the legal entity is not advantageous to the buyer because he is limited to adhering to the current tax basis on Smithon’s assets even if he had paid more for the assets. Issuing debt in Johnson Service Company to pay for the Smithon Company would raise debt equity ratio issues. Issuing debt would increase the amount of liabilities owned by the organization to compound the fact that it is already operating at a loss. Issuing debt would result in ratio that is over or close to unity indicating that the company’s assets are being financed by debt. High debt equity ratio indicates that the organization is risky and is financially...
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...Int. J. of Human Resource Management 12:2 March 2001 299–310 Strategic human resource management effectiveness and rm performance Orlando C. Richard and Nancy Brown Johnson Abstract This study tests whether strategic human resource management (SHRM) effectiveness signi cantly affects organizational level outcomes. Using the resource-based view of the rm, this study examines the effective use of human capital on organizational performance. Further, the role that a contextual factor – capital intensity – plays in modelling is explored. Results show that SHRM effectiveness signi cantly reduces employee turnover and increases overall market performance assessment. However, SHRM effectiveness affected both rm productivity and return on equity only when moderated by capital intensity. Keywords Human resources; strategy; effectiveness; outcomes. The interest of strategic management in examining the role of human resources as value-added has evolved (Baird and Meshoulam, 1988) to broaden the focus of human resource management research from a micro (i.e. individual effectiveness focus) approach to a macro (i.e. organizational effectiveness focus) or strategic approach (Butler et al., 1991). The strategic human resource management perspective (SHRM) makes evident the importance of human resource practices for organizational performance, such as employee turnover, productivity and nancial performance. The current focus on HRM as integral to rm’s strategic processes involves viewing...
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...prime examples of countries that still have trouble with underdevelopment. 2. SYNCRETISM- Sil reading. Syncretism is the strategy of Nation building that combines foreign/modern and native/traditional values. Sil believes that in order for a Third World country to move forward, traditions must be reconstructed with newer, more modern ideals. This is significant to Comparative Politics because it is a way of understanding how social mobilization affects modern nation building. 3. ZAIBATSU- Johnson and Fukai reading. Zaibatsu are eastern Asian industrial and financial conglomerates that unleashed entrepreneurship in countries like Japan, South Korea, and Taiwan. They focus capital in developmental projects in underdeveloped countries and constitute compromise between inefficiencies of purely state enterprise and indifference to developmental goals of purely private enterprise. This is significant to Comparative Politics because it started entrepreneurship and encouraged investment in Third World counties. It is also a prime player in the Capitalist Developmental State Model of Japan, South Korea, and Taiwan, and has spread globally. 4. 5 STAGES OF ECONOMIC GROWTH- Rostow...
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...Faculty of Commerce Faculty of Commerce - Papers University of Wollongong Year Computing the divisional cost of capital using the pure play method H. W. Collier∗ S. Haslitt‡ T. Grai† C. B. McGowan∗∗ of Wollongong, collier@uow.edu.au University, USA ‡ Oakland University, USA ∗∗ Norfolk State University, USA † Oakland ∗ University This is a preprint of an article accepted for publication as Collier, HW, Grai, T, Haslitt, S and McGowan, CB, Computing the divisional cost of capital using the pure play method, Applied Financial Economics Journal, 2006(in press). Copyright Taylor and Francis. Original journal available here. This paper is posted at Research Online. http://ro.uow.edu.au/commpapers/164 Computing the divisional cost of capital using the pure play method Henry W. Collier (University of Wollongong) Timothy Grai (Oakland University) Steve Haslitt (Oakland University) Carl B. McGowan, Jr. (Norfolk State Universtiy) COMPUTING THE DIVISIONAL COST OF CAPITAL USING THE PURE PLAY METHOD1 ABSTRACT: The Cost of Capital Model is used to calculate the net present value of projects within a multi-unit corporation but may provide incorrect answers for projects that have a level of risk that differs from the overall average risk level for the corporation. We demonstrate the use of the Pure Play Method for calculating the required rate of return for a division of a corporation that has risk characteristics that differ from the risk characteristics of the...
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...financial firms to assemble risk information. I look beyond questions of risk measurement methodology to investigate the implications of risk management information systems. By examining several theoretical models of the firm in the presence of asymmetric information, I explore how a financial firm’s capital budgeting, incentive compensation, capital structure, and risk management activities are likely to change as it becomes less costly to assemble risk information. I also explore the likely effects of the falling cost of assembling risk information on a financial firm’s organizational structure. Two common themes emerge: centralization within the firm and increased disclosure of risk information outside the firm are both likely to increase. 1 Introduction Financial dealer firms have invested heavily in recent years to develop information systems for risk measurement and management.1 These systems gather data on a firm’s risk positions and compute statistical measurements, such as Value-atRisk, to assess the magnitude of the risks faced by the firm. Increasingly, the uses of these information systems go beyond measurement. They are now beginning to be used for capital allocation and incentive compensation. Previous literature, such as Gibson (1997), discussed how risk management information systems make it possible for financial firms to improve their risk * Email: michael.s.gibson@frb.gov. The author is a staff economist in the Division of International Finance...
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