STOCK AND BOND VALUATION

Assignment Overview

Before starting on this assignment, make sure to thoroughly review the required background materials. This assignment will require you to use the various discounted cash flow methods and dividend models to make computations. In addition to knowing the computational steps involved in stock and bond valuation, make sure you also understand the basic concepts.

Submit your answers as a Word document. Make sure to show your work for all quantitative questions, and make sure to fully explain your answers using references to the background readings for any conceptual questions. Questions 1 and 3 will require Excel, so submit an Excel file that shows your computational steps as a separate file in addition to your Word file. Question 4 is purely conceptual, no computations are necessary but make sure to apply and reference concepts from the required readings in your answers to each of the scenarios.

Case Assignment

  1. Suppose you buy a bond that will pay $1000 in ten years along with an annual coupon payment of $50 and the interest rate is 4%. Answer the following questions:
    1. What is the value of this bond?
    1. Now suppose the bond has no coupon payments (it is a “zero coupon” bond) but still pays $1000 in ten years. What is the value of this bond?
    1. What would happen to the value of the bond if the inflation rate unexpectedly goes up? What the bond value increase or decrease?
    1. Now suppose the bond still pays an annual coupon of $50 but the interest rate drops to 2%. What is the new value of this bond?
  2. The XYZ Corporation pays a dividend of $1 for each share and its required rate of return is 8%. Answer the following questions:
    1. Assuming zero growth in dividends, what is the value of each share?
    1. Now assume a 4% annual growth rate in the dividend paid. What is the value of each share?
    1. Assume the growth rate is still 4%, but the required rate of return drops to 6%. What is the new value of each share?
  3. Acme Medical Corp. is expecting the cash flows from 2018-2022 in the table below. After 2022 it is expecting growth in cash flow at an annual rate of 3%. The firm has determined that its weighted average cost of capital (discount rate) is 7%. Using the table below calculate the following:
    1. What is the present value of Acme’s future cash flows using the discounted cash flow model?
    1. If the firm has 200,000 common shares outstanding, zero preferred shares, and debt with a market value of $10,000,000 what would be the value of each share?
    1. Now suppose the discount rate increases to 10%. How would your answers to a) and b) above change based on the new discount rate?
Year Cash flow
2018 500,000
2019 550,000
2020 620,000
2021 700,000
2022 800,000
  1. Suppose the Alpha Manufacturing Corporation is experiencing extreme financial difficulties and is considering bankruptcy. Its shareholders are currently almost equally divided about whether or not the company should go bankrupt, with one outspoken faction pushing for bankruptcy and the other strongly opposing it. They have $50 million in debt all in the form of bonds, and bondholders are pretty well united in that they want the firm to declare bankruptcy.
    1. The CEO announces that he is leaning against bankruptcy. This means one faction of shareholders is happy, but another faction of shareholders is very upset and the bondholders are also unhappy. Can the unhappy faction of shareholders team up with the bondholders to vote out the CEO? Explain your reasoning using references from the background readings.
    1. Suppose Alpha ends up declaring bankruptcy. They do not have any cash in the bank but they own $60 million worth of real estate. They only have one type of shareholder—common shareholders. If they sell the real estate, how much of this will bondholders get and how much with shareholders get? Explain your reasoning using references from the background readings.
    1. Now suppose that Alpha has two classes of shareholders—common shareholders and preferred shareholders. Preferred shareholders are owed $20 million in dividends that have been unpaid in the last two years. If Alpha goes bankrupt and sells its $60 million worth of real estate, how much will bondholders get, how much will common shareholders get, and how much will preferred shareholders get? Explain your reasoning using references from the background readings.

Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations.
 
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Finance

Welcome to our Week 1 Discussions! To get us started, let’s consider the following questions.

1) Would a traditional income statement differ depending on whether the business is a service organization, merchandiser, or manufacturer?

2) Could we use managerial accounting tools to assess the profitability of an organization other than a manufacturing business, or are the topics that we are learning only related to manufacturing?

3) If we could use these concepts in service and/or merchandising businesses, how would we go about doing so?

Let’s start with the first question.

2):

Go to page 130, Case 3-30, Ethics and the Manager. Let’s discuss the questions,
make value-added comments, points, and share personal experiences of unethical situations.

 
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STOCK AND BOND VALUATION

For your second SLP assignment, continue to do research on the company you chose to write about for your Module 1 SLP. This time you will be doing research about the valuation of the company to try to determine if its stock price is overvalued or undervalued. You can use Google Finance, Yahoo Finance, or similar Web pages to find the financial information about this company.

Write a 2- to 3-page paper with the following items:

  1. What is the P/E ratio of this company? How does the P/E ratio compare to other companies in this industry? Based on the P/E ratio, do you think the company is overvalued or undervalued?
  2. Find the company’s balance sheet. Calculate the book value of each share. This can be done by taking the total assets and subtracting total liabilities. Then divide the number you get by the total number of outstanding shares. Is the number you get higher or lower than the current price of the share? Based on what you’ve found, would you say the stock is overvalued or undervalued?
  3. Finally, do a search on what different analysts have to say about your company. Do they generally recommend buying the stock or selling the stock? What reasons to they give for their assessment? Find at least three analyst reports about this company.

SLP Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations.
 
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CAPITAL BUDGETING AND THE COST OF CAPITAL

Assignment Overview

Before starting on this assignment, make sure to thoroughly review the required background materials. Make sure you fully understand both the basic concepts as well as how to calculate payback period, NPV, IRR, and WACC. Submit your answers in a Word document. Make sure to show your work for all quantitative questions and fully explain your answers using references to the background readings for any conceptual questions. Questions 1 and 2 will require Excel. Attach an Excel file to show your computations for Questions 1 and 2.  

Case Assignment

  1. The table below gives the initial investment and expected cash flows over the next five years for two different projects. Assume that the industry you are in expects a return of 10%, which you use as the discount rate in net present value (NPV) calculations and as the required rate of return for purposes of deciding on projects. Also, assume that management only wants to invest in projects that pay off within four years.

For each project, compute the payback period, NPV, and internal rate of return (IRR). Then explain whether each project should be accepted based on these three criteria.

  Project A Project B
Initial Investment $40,000 $28,000
Year Cash Flows
1 $10,000 $10,000
2 $10,000 $13,000
3 $10,000 $5,000
4 $10,000 $5,000
5 $10,000 $6,000
  • Suppose you are planning on becoming a vendor at the arena where your favorite sports team plays. You are trying to decide between opening up a souvenir stand selling T-shirts, caps, etc., with your sports team’s logo or opening up a hot dog and beer stand. It is more expensive to open up the hot dog and beer stand because you need to purchase a license to serve alcohol and you need to spend money to comply with health department regulations. Revenue from the souvenir stand is likely to be unpredictable because fans of your favorite team tend to want to purchase hats and T-shirts only when the team is winning. Revenue from hot dogs and beer seem to be a little more steady since fans want to eat and drink regardless of whether the team is winning.

    Below is a table with the initial investment cost of each type of stand and the annual payments you expect over the next five years. The annual payments will be different depending on how well your team does. Therefore, you will estimate how much cash flow you will get depending on whether your team does better than expected (optimistic), the same as the past few years (most likely), and worse than expected (pessimistic). Use a discount rate of 8%.

Based on the table below, answer the following items:

  1. Calculate the net present value (NPV) for each type of stand under each of the three scenarios. Calculate the range of possible NPV values for each type of stand.
  2. Based on your answer to A) above and your own guesses about how well you think your favorite team will do over the next five years, which type of stand would you rather invest in?
  Souvenir Stand Hot Dog and Beer Stand
Initial Investment $100,000 $150,000
   Annual Cash Inflows (5 Years)
Outcome    
 Pessimistic $30,000 $50,000
 Most likely $50,000 $60,000
 Optimistic $70,000 $70,000
  • Suppose you are a corn farmer in your home state. You have to decide between two projects. One project is to purchase new equipment for your farm that will help boost your profits for the next 10 years. You also find out that you can purchase a large banana farm in Brazil for the same price as the equipment, and at the current market price for bananas you will make a lot more profit than you would from purchasing new corn farming equipment.

    After asking around, you find out that the standard discount rate for evaluating the NPV of the farming project is 6%. Most farmers in your home state seem to use this rate successfully. However, you don’t know any other banana farmers and you don’t know too much about farming in Brazil, so you have to make a guess on an appropriate discount rate for the Brazilian banana farm. Based on the concepts from the background readings, would you say the Brazilian banana farm will need a lower or higher discount rate? A lot larger or smaller, or only a little?
  • Calculate the following:
    • The cost of equity if the risk-free rate is 2%, the market risk premium is 8%, and the beta for the company is 1.3.
    • The cost of equity if the company paid a dividend of $2 last year and is expected to grow at a constant rate of 7%. The stock price is currently $40.
    • The weighted average cost of capital (WACC) if the company has a total value of $1 million with a market value of its debt at $600,000 and a market value of its equity at $400,000. Its cost of debt is 6% and its cost of equity is 15%. The tax rate it pays is 25%.
  • Suppose you own a chain of dry cleaners and the WACC you’ve been using to make decisions on new purchases of dry cleaning equipment is a steady 9%. Recently, gambling has been made legal in your home town so you decide to expand and open up a casino. Should you use the same WACC to evaluate purchases of casino equipment? Why or why not? What are some alternatives to using the same WACC to make decisions on casino equipment? Explain your reasoning, and make references to concepts from the background readings.  

Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations.
 
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CAPITAL BUDGETING AND THE COST OF CAPITAL

For your Module 3 SLP assignment, continue to do research on the company that you wrote about for Modules 1 and 2. For this assignment, you will be estimating the weighted average cost of capital (WACC) for your chosen company. The final calculation will be fairly straightforward, as it involves just plugging in some numbers into an equation. However, the more challenging task will be finding the necessary numbers to plug into the formulas. You will need information such as the beta for your company, the bond-rating, and various information from its balance sheet. Links to some suggested Web pages for finding this kind of information is included in the instructions, but you might be able to find other sources of information. Go step by step and present your information for Steps 1-4 below in a Word document. Make sure to show all of your steps one by one and include the sources of your information:

  1. Find out your chosen company’s credit rating. Rating agencies such as Moody’s and Standard and Poor’s assign ratings to companies. AAA is high, AA is lower, BBB is even lower, etc. The higher the rating, the lower the cost of debt capital. Explain what your company’s credit rating is and the reasons for the high or low rating based on your research. Also, use the Fidelity Fixed Income Web page to find out what the current return is for a 30-year bond for a corporation with the rating that your company has. This yield will be the approximate cost of debt capital for your company. We will call the cost of debt RD.
  2. Now estimate the cost of equity for your company. First you will need the beta; you already found this for your Module 1 SLP. You will also need the three-month treasury bill yield, which we will use as our measure of the risk-free rate. This rate should be listed on the Fidelity Fixed Income Web page linked above. Finally, you will need the equity risk premium. You can find estimates of this on many Web pages including Fidelity Fixed Income or Gutenberg Research. It is usually around 5%. Once you have this information, you can estimate the cost of equity as the 30-year treasury bill yield rate plus beta multiplied by the equity premium:

    Cost of Equity = risk-free rate + Beta * (Equity Premium).

    Show your calculations. We will call the cost of equity RE.
  3. Now find out how much of the firm’s capital is equity and how much is debt. For the total value, look at the balance sheet for your company as found on Google Finance or a similar Web page. The total value of your company will be “total liabilities and shareholder’s equity.” The proportion of debt will be total liabilities divided by total value, which we will call D/V. The proportion of equity will be shareholder’s equity divided by total value, or E/V. If you calculate them correctly, the proportions will add up to one.
  4. Now we have all the information we need to get at least a rough ballpark estimate of WACC. Let’s assume a corporate tax rate of 35%. So the formula we will use is WACC = (E/V)* RE +(D/V)* RD *(1-.35)

    Calculate WACC and show your computations. As a “reality check” on your calculations, the WACC should likely be in the single digits and positive. Compare what you found to the average WACC in your company’s industry, which should be available on Web pages such as Cost of Capital by Sector (US). Note that 35% is the official corporate tax rate, but many corporations find tax breaks. If your WACC is too low, try computing it with a lower tax rate such as 25% or 10%.  

SLP Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations.
 
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Practice IRAC

Practice IRAC

Practice IRAC

Course outcome addressed in this Assignment:

 Use principles of sound reasoning.

Instructions

This week you will use the IRAC paradigm to discuss the legal issues raised by your client’s fact pattern. Draft a IRAC Brief that:

  1. States the issue
  2. Identifies and explains the rule that governs that issue
  3. Applies the rule to your client’s facts
  4. Concludes with a prediction about how the issue will be decided  

Joe Smith was driving from his home in Little Rock, AR, to Bentonville, AR. Traveling with him was his dachshund, Zippy. Zippy was riding in the back seat of Joe’s car. When Joe stopped at a highway rest stop, he opened the door to let Zippy take a bathroom break but did not put Zippy’s leash on. Zippy jumped out of the car and ran into the woods, and Joe was unable to find her. According to the statute and case below, has Joe committed the offense of Cruelty to Animals?

A person commits the offense of cruelty to animals if he or she knowingly abandons an animal at a location without providing for the animal’s continued care. Ark. Code Ann. § 5-62-103 (West).

An act or failure to act is “knowingly done” if done voluntarily and intentionally and not because of mistake or accident or some other innocent reason. Sewell v. United States, 406 F.2d 1289 (8th Cir. 1969)

?

Your Law School Personal Statement needs to be organized and structured properly with IRAC.

Now regarding the mechanical form of the Law School Personal Statement… Once you arrive in in law school you will be introduced to the IRAC method of organizing your writing:

ISSUE – Identify the issue your writing concerns.

RULE – Identify the Rule of Law that applies to the Issue.

ANALYSIS – Analyze how the Rule applies to the Issue.

CONCLUSION – State your Conclusion based on your analysis.

This IRAC form should be repeated for every legal issue you have to address in any document you draft for any court, employer, or client.

Paragraph 1 = Introduction to your law school admission essay (general answer to question) – worked for a lawyer, personality type, full investigation, prepared myself, etc. Ex: “It is clear and unequivocal that the decision to become a lawyer requires extensive research and preparation. I believe that I have conducted not only a thorough academic investigation of what is required to become a lawyer but also put forth significant efforts to discover what it is really like to practice law” then summarize your justification. (Don’t copy this… enough people view this website to make plagiarism a significant risk.)

Paragraph 2 = First reason for wanting to become a lawyer:

ISSUE – “My primary basis for determining that the law is the proper career path for me concerns a summer internship I had at one of the top law firms in the state.”

RULE – “Experience is the most efficient teacher and I learned more about the practice of law from this internship than any other book or tutorial program.”

ANALYSIS – Talk about your experience, analyze what you did and what you learned and present same to the reader. “During my tenure at___ I was responsible for ___…. I learned ___… It felt amazing to accomplish…”

CONCLUSION – Having experienced working at a law firm first hand, I can confidently state that that the practice of law is the career for me.

Paragraph 3 = Repeat IRAC for your second reason.

Paragraph 4 = Repeat IRAC for your third reason.

Paragraph 5 = Summarize and state your overall conclusion.

So then, going forward with drafting your law school admission essay; 1) determine your reasons for applying to law school, 2) pick specific actions or examples that display PAAC and then 3) outline everything on paper with IRAC 4) then start your formal drafting, 5) revise over and over and over.

 
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LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Review the 1) dividends for the past three years and 2) capital structure of the company you have been researching for your SLP assignment. Then answer the following questions in a Word document (except for the Excel portion specifically noted). The paper should be 2 pages in length.

  1. What has occurred with your selected company’s dividend payout, dividend yield, and dividend per share over the past three years? Do you have any explanations for what has occurred? Also, has this company had any stock splits or stock repurchases in recent years?
  2. How does your selected company’s dividend payout, dividend yield, and dividend per share compare with other companies in its industry? Has the company’s dividend strategy been similar to other companies in its industry?
  3. Use Excel to plot your selected company’s earnings and dividends over the past three years. Do you notice any patterns? What dividend policies from the background readings best match these patterns?

SLP Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations
 
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Essay

In what ways does the WSQ Framework address challenges brought about by the VUCA environment?

Word Limit: 600 words

Citation Format: APA

References: Reference a MINIMUM of 3 different sources of information.

CRITERIA REQUIREMENT
Description of the WSQ Framework   (200 words) Description of the WSQ Framework provides clear and succinct explanations of its intentions and feature   Key attributes of the framework are described in relation to its intentions.
Description of the VUCA Environment   (200 words)     Description of the VUCA environment is analytical.   The descriptions of volatility, uncertainly, complexity and ambiguity are accompanied by analysis of its emergence and trends.
Relations between the WSQ Framework and VUCA (200 words)   Critical relationships between the WSQ Framework and VUCA environment were identified.   Links are insightful and original.
Mechanics of Writing     Satisfies and stipulated word count of the assignment requirements.   In-text citations done according to APA format with little or no mistakes. Referencing follows the APA format but with little or no mistakes. Sufficient and authoritative resources referenced.
 
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LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Assignment Overview

Before starting on this assignment, make sure to carefully review the background readings. Part A requires you to make some computations, and Part B requires you to analyze some scenarios using your knowledge of the concepts. So make sure to go through the computational examples in the required readings and also thoroughly review the key concepts before starting on this assignment.

Case Assignment

Part A: Quantitative Problems

  1. Suppose QuickCharge Corporation manufactures phone chargers. They sell their chargers for $20. Their fixed operating costs are $100,000 and their variable operating costs are $10 per charger. Currently they are selling 30,000 chargers per year.
    1. What is QuickCharge’s EBIT (earnings before interest and taxes) at current sales of 30,000?
    1. What is QuickCharge’s breakeven point?
    1. Calculate the EBIT if QuickCharge’s sales increase 50% to 45,000 chargers. What is the percent of change in EBIT under this increase in sales? Also, calculate the EBIT if the company’s sales decrease 50% to 15,000 chargers. What is the percent of change in EBIT under this decrease in sales?
    1. What is QuickCharge’s degree of operating leverage? Based on your computation, what does its operating leverage say about QuickCharge’s business risk?
  2. The StayDry Umbrella Corporation will have an EBIT of $100,000 if there is a normal amount of rain this year. But if there is a drought, they will have an EBIT of only $50,000. The interest rate on debt is 10%, and the tax rate is 35%. The company does not pay any preferred dividends.
    1. If StayDry has zero debt and 50,000 outstanding shares, what will its EPS (earnings per share) be if there is normal rain? What will its EPS be if there is a drought? What is its DFL (degree of financial leverage)?
    1. Now suppose StayDry has decided to take on $300,000 in debt and has used these funds to buy back half of the outstanding shares so now there are only 25,000 outstanding shares. What is the new EPS and DFL for both normal rain and drought?
    1. Based on your answers to a) and b) above, what are the trade-offs management has to make between zero debt or $300,000 in debt? What are the benefits and disadvantages of taking on this debt?

Part B: Conceptual Questions

  1. For each of the following scenarios, explain whether the situation describes financial risk or business risk. Explain your answers to each scenario using at least one of the references from the background readings:
    1. A pharmaceutical company has developed a new cancer treatment drug that has a much higher success rate than other drugs currently in the market. It has the  potential to triple the company’s profits. However, the FDA has expressed concern about some side effects, and it is not clear if the FDA will approve the drug.
    1. An airline has an EBIT of $100 million per year. However, it also has a huge amount of debt and pays $97 million per year in interest. Its EBIT is relatively stable but tends to go up or down by $5 million or so each year depending on the economy.
    1. A basketball franchise earns an EBIT of $50 million a year when its team has a winning year. However, it earns only $10 million when its team has a losing year.
  2. Explain what capital structure theory (or theories) best describes the following situations. Make sure to cite at least one of the required textbook chapters for each answer, and to cite at least two references for this section:
    1. A CEO decides to borrow $50,000 in new debt, and the share prices rise dramatically. He then decides to sell half of his own personal shares, and when this is reported in the Wall Street Journal, the share prices drop dramatically in value.
    1. The corporate tax rate rises from 35% to 45%, and the XYZ Corporation decides to issue more debt. A year later, bankruptcy laws are changed to become much stricter and costlier. XYZ then decides to pay back half of its debt.
    1. A CEO named Joe Bigwig is known for living large with very expensive cars and a huge mansion. Joe is seeking a large loan from a bank to finance some new projects for his corporation. However, the bank becomes concerned when they find out that he recently used company funds to buy a brand-new company jet and also schedules numerous business trips to Hawaii and stays in five-star hotels. The bank tells Joe he will receive the loan only if he agrees to scale back on his personal expenses and not give himself or any other executives a raise until the loan is paid back.

Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations.
 
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Training and development

Training and development

1200 words

MINIMUM OF 10 APA Referencing

Question:

Comfort Transportation Pte Ltd, commonly known as comfort, is a taxi company owned by ComfortDelgo Coporation Ltd. With the advent of the sharing economy, Singapore’s taxi industry has been significantly disrupted (http://www.channelnewsasia.com/news/singapore/new-entrants-turn-the/2214680.html)

i.                     Using publicly available information and data, propose business goals for comfort that will address the challenges the company and industry as a whole is facing. (Detailed information and data about the company and industry, business goals are based on analysis of the researched information and data)

ii.                   Conduct an organizational training needs analysis to determine the knowledge, skills and attitudes necessary for realizing the business goals proposed in part (i). Report your findings. (Findings of the analysis are closely related to the organizational’s training needs)

iii.  Conduct a task (functional) analysis to determine the observable actions and tacit cognitive functions needed for proficiency (and perhaps even excellence) in the identified job tasks. Report your findings (Analysis methods are applied correctly and constantly checked against the organization’s training needs)

iv.  Conduct individual learning needs analysis to determine the employee’s performance gaps as compared against the finding of the task analysis. Report your findings. (Analysis methods are applied correctly and constantly checked against the organization’s training needs)

v.   Based on the findings of the three (3) levels of training needs analysis conducted, craft the learning outcomes for the training program to be designed in Assignment 3. (Learning outcome are phrased with an appropriate verb that indicated action to be taken)

 
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