...Sergio Park Homework 6 Chapter 16 Concept Review and Critical Thinking Questions 1-6, 9-10 1) Business risk is the equity risk that comes for the firm’s operating activity. While financial risk is the equity risk that comes from the capital structure of the firm. Firm A or Firm B could have higher cost of capital regardless of what kind of risk. 2) No, because there are points where the cost of debt is still less than the cost of equity. Use of debt doesn’t necessarily increases the WACC. 3) It is hard to determine the D/E ratio that will maximize the firm’s value because there are too many factors that differs across the different industries. However, the firm can find the optimum value of D/E ratio by comparing the cost of debt with cost of expected bankruptcy. 4) Fixed cost intensive such as airlines, cable television and electricity uses greater financial leverage. While industries that have higher risk uses less financial leverage. Firms with less variable cost and predictable revenue uses more debt financing. Some firms might actually benefit from high debt/equity ratio because of the tax cut (higher cash flow) 5) Because it magnifies gain and losses (?) 6) Homemade leverage is the use of personal borrowing instead of the corporate borrowing to fund. 9) It might be considered unenthical because if the company its losing money it means either that it is not beneficial to the market, or the company its not efficient. Therefore, no one should take...
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...Finance homework 1 Mini Case: a) Finance is the cornerstone of the free market. Corporate financial management is important to managers because it is critical to the economic health of every business. b) Evolution of organizational forms: 1) Startup – Proprietorship: an unincorporated firm owned by 1 person. i. Advantages: cheap and easy to start, minimal government regulations, not subjected to corporate taxation ii. Disadvantages: difficult to acquire capital for growth, unlimited liability for debt on sole proprietor, life of proprietorship limited to founder’s lifespan 2) Partnership – more than one owner conduct noncorporate business together iii. Advantages: same as proprietorship iv. Disadvantages: same as proprietorship except that partners can lose all of their personal assets because each partner is responsible for business debt. 3) Corporation – many owners; a legal entity created under state laws that is separate and distinct from its owners and managers. v. Advantages: unlimited lifespan, easy to transfer ownership interest through stock shares, limited liability to invested funds vi. Disadvantages: earnings may be subject to double taxation, setup requires preparation of a charter c) Corporations may choose to go public by offering an initial public offering where they sell stock to the public. They can continue to grow after the IPO by borrowing from banks, issuing debt...
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...Chapter 10 3. a) The new price for the stock shall be $45. b) Before the stock split, the payout was $6 per share and after the split, the dividend is $3 per share. 4. a) After the cash dividend is paid, the balance sheet will show cash of $26 Million and Retained earnings of $60 Million. b) A 5% dividend will cause cash to change to $21 Million ($2.5 per share x 2 million outstanding shares that will receive the dividends) and retained earnings will drop to $57 Million. c) A 2 for 1 reverse split will show that the number of outstanding shares will decrease to 1,000,000, but the other values remain undisturbed except that the par value will increase to $100. 5) The effect of the stock dividend is Common stock increases by $20,000, outstanding shares increase by 20,000 and Additional Paid in Capital increases by $60,000, while retained earnings decreases by $80,000. The effect of the cash dividend is that cash decreases by $30,000 and retained earnings will drop by an equal amount. 7. a. EPS drops to $2.10, b) no change, c) no change, d) no change, e) doubles to 2,000,000, f) no change. Chapter 11 1. a) V= 2 (1.06)/4%= $25 is the value of the stock. b) The value of the stock changes to $79.5 c) The value of the stock increases to $141.33 d) The value of the stock changes to 34.66 e) The value of the stock changes to $39.87 2) I'd be willing to pay $77. 3) a) The maximum prices based on the dividend growth model would be $15.29, 25.5 and 49.6 respectively. b) The...
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...estimates, the OCF is the amount the firm received for its business operations. The FCF is the money that represents true profit. While the $4,000 is a larger number this money will be used to pay expenses, while the FCF is extra and can be used to pay investors or to pay more towards decreasing debt. P2-4 The appropriate action on Aluminum Industries Inc loan request, in regards to its debt ratio would be to deny the request. For three reasons: 1. The Firms debt ratio is 73%, which is 22% higher than the industry average of 51%. A firms debt ratio measures the proportion of total assests financed by the firm’s creditors. 73% is considered to be a high number and tells me that the firm has a high reliance on borrowed money to finance the company. Debt ratio = $36,500,000 / $50,000,000 = 0.73 or 73% 2. The Firms debt equity ratio is 1.48, which is also higher than the industry average of 1.07. Debt equity ratio =...
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...a. Why is corporate finance important to all managers? Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) forecast the funding requirements of their company and devise strategies for acquiring those funds. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. The three main forms of business organization are sole proprietorships, partnerships, and corporations. Several hybrid forms are also gaining popularity. These include the limited partnership, the limited liability partnership, the professional corporation, and the S corporation. The proprietorship has three important advantages: (1) it is easily and inexpensively formed, (2) it is subject to few government regulations, and (3) the business pays no corporate income taxes. The proprietorship also has three important limitations: (1) it is difficult for a proprietorship to obtain large sums of capital; (2) the proprietor has unlimited personal liability for the business’s debts, and (3) the life of a business organized as a proprietorship is limited to the life of the individual who created it. The major advantage of a partnership is its low cost and ease of formation. The disadvantages are similar to those associated with proprietorships which are unlimited liability, limited life of the...
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...Peter DeVito Ed Travaglianti Cameron McNeil Corporate Finance Homework #1 1. 6 month | 1 year | Investment | C1 = 10,000 | C2 = 20,000 | 26,000 | r1 = 0.03 | r2 = spot rate = s | | 100 = 31+0.03+ 1031+s where 3 is the coupon payment based on a 6% yield s= 6.09% NPV = -C0+ C1(1+r1)+ C2(1+r2) NPV = -26,000+ 10,000(1+0.03)+ 20,000(1+0.0609) NPV = 2560.66 with positive NPV, YES, we should invest 2. Based on the Annuity Formula and assuming the same 9%, 30 year, with time t=0 (10 years ago) Monthly Payments = 4,023.11 Mortgage = 500,000 AC, r, t= Cr 1-1(1+r)t 500,000= 4,023.11(0.0912) 1-1(1+(0.0912))12(30) 500,000= 4,023.11(0.0912) 1-1(1+(0.0912))360 r≠ 0.09 r= 0.09*0.9122=0.0821 or 8.21% New formula then becomes: 500,000= 4,023.11(0.082112) 1-1(1+(0.082112))12t t= 23.2 years 3. Year | 0 | 1 | 2 | ∞ | Sales | | 100 | 110 | Cr-g=1100.05-0.03=5500 | Profit | | 20 | 22 | C∞= 1100 | Depreciation | | -10 | -10 | | ∆ NWC | | -10 | -1 | -55 | CAPX | | -11 | -12 | | Taxes (40%)(Gross Profit) | | -8 | -8.8 | -440 | Net Cash Flows | | -9 | 0.2 | 660 | CF=Gross Profit-Taxes-CAPX- ∆NWC R1 year: The 1 year rate should be equal to investing in four 3 month rates. FV3 month@ t=1 year FV=1 1+0.0344=1.03034 FVPV=1+r 1.030341= 1+r1 year NPV=0= -C0-91+0.0303+0.21+0.042+ 660 already accounted for r C0=651.5 4. pE=18 g=18% pE=1r-g ...
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...HW6 Assignment FIN465 – Chapters 15,16,17 Instructor: Dr. Blaise Roncagli You may use your book and notes when working on these problems, and you may work in groups with others, but the final product that you submit for grading must be your own work. Follow the instructions provided in this handout very carefully. Failure to follow instructions may result in loss of points. Chapter 15 Problems 15-1 Murphy Toys Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Murphy would like you to value this target and has provided you with the following information: • Murphy expects to keep the target for three years, at which time it expects to sell the firm for 300 million Malaysian ringgit (MYR) after any taxes. • Murphy expects a strong Malaysian economy. The estimates for revenue for the next year are MYR200 million. Revenues are expected to increase by 8% in each of the following two years. • Cost of goods sold is expected to be 50% of revenue. • Selling and administrative expenses are expected to be MYR30 million in each of the next three years. • The Malaysian tax rate on the target's earnings is expected to be 35 percent. • Depreciation expenses are expected to be MYR20 million per year for each of the next three years. • The target will need to reinvest MYR7 million in cash each year to support existing operations...
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...HW6 Assignment FIN465 – Chapters 15,16,17 Instructor: Dr. Blaise Roncagli You may use your book and notes when working on these problems, and you may work in groups with others, but the final product that you submit for grading must be your own work. Follow the instructions provided in this handout very carefully. Failure to follow instructions may result in loss of points. Chapter 15 Problems 15-1 Murphy Toys Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Murphy would like you to value this target and has provided you with the following information: • Murphy expects to keep the target for three years, at which time it expects to sell the firm for 300 million Malaysian ringgit (MYR) after any taxes. • Murphy expects a strong Malaysian economy. The estimates for revenue for the next year are MYR200 million. Revenues are expected to increase by 8% in each of the following two years. • Cost of goods sold is expected to be 50% of revenue. • Selling and administrative expenses are expected to be MYR30 million in each of the next three years. • The Malaysian tax rate on the target's earnings is expected to be 35 percent. • Depreciation expenses are expected to be MYR20 million per year for each of the next three years. • The target will need to reinvest MYR7 million in cash each year to support existing operations...
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...Rebecca Logan Week 1 Homework Chapter 1 Exercise 14 In this situation, the opportunity cost is only the incremental revenue versus the costs to stay open. The revenues are $2500, while the costs total $1500. Rent and depreciation of office equipment are not included in this analysis because those costs will be incurred regardless of whether the company stays open on Saturday or not. Problem 2 a. The total variable costs for producing an additional 50,000 jars (375,000 jars total) are $480,000. The incremental costs for the additional 50,000 jars are $64,000. b. If Santiago’s reduces the price by $.40, they would sell an additional 50,000 jars. This would bring in a revenue of $1,725,000, versus $1,625,000 if they sell at $5 per jar. The incremental revenue would be the additional revenue ($100,000) – the incremental costs ($64,000), which equals $36,000. c. Santiago’s should lower the prices, as the incremental revenue would be more than the incremental costs. Problem 4 a. It would definitely be useful to investigate both increases. For the increase in the cost of merchandise, we should investigate to see specifically which merchandise we spent more on. We did have an increase in sales, but we need to make sure we are spending money on merchandise that is selling more. We also need to investigate the salaries of sales staff to make sure that the salaries that were higher than we expected were paid to sales staff that was also bringing in additional revenue...
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...upon the microeconomic methods discussed in the text. If you have technical questions, please feel free to contact Technical Support. You can also contact me through the email feature in the class. I hope you have a great learning experience! Overview This is an introductory course in the principles of macroeconomics. I am looking forward to introducing you to some of the models economists use to understand and predict how national economies react to the decisions made by consumers, producers, and policy makers. This course focuses on large economic systems, such as the U.S. economy. Macroeconomics studies such national economies and the determination of national income. Graded materials consist of interactive weekly modules, weekly homework, a midterm, and a final examination. updated 14-09-27 19:25 Syllabus XL2 What's New This quarter, UCLA Extension is making...
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...Management s374: General Management & Strategy The University of Texas at Austin - Summer 2015 Dennis S. Passovoy (Professor) (512) 471-2195 GSB 5.124G (in McCombs) via Canvas INBOX Davit Davtyan (TA) Phone: Office: E-Mail: Office Hours: M T W TH 1:00 – 1:45pm, or by appointment M T W TH 9:00 – 9:45am, or by appointment Class: #72305 (July 13 – August 14) M T W TH 2:00 – 3:45pm CBA 4.328 CBA 4.304A (in McCombs) via Canvas INBOX Prerequisites • • • • • • Upper-division standing Seventy-five semester hours of coursework, including: Management 336 or 336H Credit or registration for Finance 357 or 357H, and Marketing 337 or 337H And credit or registration for one of the following: Accounting 353J, 366P, Business Administration 353H, Finance 353, 366P, Management 353, 366P, Management Information Systems 353, 366P, Marketing 353, 366P, Operations Management 353, or 366P. May be counted toward the writing flag requirement. May be counted toward the independent inquiry flag requirement. Course Description This course is restricted to students in a McCombs School of Business major. It is designed to enable students to analyze business situations from the point of view of the practicing general manager. Addresses key tasks involved in general management, including strategic decisions that ensure the longterm health of the entire firm or a major division. Writing Flag This course carries the Writing Flag as well as the Independent...
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...Personal Responsibilities Danyell Johnson GEN/200 09/15/2014 Jeremy NeVille Introduction In my opinion, personal responsibility is the main key in becoming successful. To achieve this you must hold yourself accountable for your own actions as well as decisions. John G. Rowland said, “I’m ashamed to be here today, and I accept full responsibility for my actions.” Mahony, Lender & Altimari. 2005). You need to take charge by practicing discipline as well as using time management skills. If you can incorporate these two things in daily life then you can easily incorporate them in becoming a successful college student. Personal Responsibility Finances play a major part in one’s life; I know it does for me. When I think about finances I think of bills and budgeting those bills. To budget my bills I use a calendar to help me keep track of which bill is due when. This has helped me so many times because I tend to stick my bills in a drawer and forget about them. If I write on my calendar all my bills then I can visually see what is needed to be paid next. Budgeting can be hard and I am still in the process of learning how to budget. It will take time and practice and I know that I will get the hang of it sooner or later. My family is also another major benefactor in my life. With going back to school I now have to manage my time between school and family. I have a three and a half year old son and he requires most of my time. He is not used...
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...* Log In * Sign Up ------------------------------------------------- Top of Form Bottom of Form How Much Do Study Habits, Skills, and Attitudes Affect Student Performance in Introductory College Accounting Courses? * Uploaded by Audrey De Jesus * * * * 1 New Horizons in Education, Vol.59, No.3 , December 2011 How Much Do Study Habits, Skills, and Attitudes Affect Student Performance in Introductory College Accounting Courses? Darwin D. YU Ateneo de Manila University, Philippines Abstract Background: Financial accounting is a skills course which to a large extent can be best learned through deliberate practice. Teachers implement this by continuously assigning homeworks, encouraging good study habits, asking students to budget time for studying, and generally exhorting students to “work hard”. Aims: This paper examines the impact of “study habits, skills, and attitudes” (SHSAs) on the performance of students in an introductory nancial accounting college course. Sample: 395 2 nd year business students in a Philippine university. Method: Data related to variables found to have inuenced accounting performance in previous researches as well as SHSA variables are collected through student survey and school records. They are treated as independent variables using multiple regression analysis, with the accounting course nal grade as the dependent variable. The paper also examines the factors that differentiate...
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...home can lead to a happy family and a healthy financial cushion. By accepting my choices and learning from them I can communicate with my family and have a great relationship with each member. Being a good role model for my children is important to me. I also believe respect is earned. My kids will have the same behaviors as me, positive and negative. By taking control of my decisions I can earn their respect and teach them how to take responsibility for their actions. Over time I have learned, often painfully, how to control my finances. As soon as I left home, I got myself into a whole heap of trouble with some credit cards. I maxed them out in a matter of months and ruined my credit for years. According to Babcock, parents giving children credit cards, teaches them to spend poorly. (Babcock, 2009) My mother never took responsibility for her spending habits and set a very bad example for me. Over time I learned how to control my finances. At work I expect my employees to follow the rules and accept responsibility for their actions. However, I cannot possibly expect them to follow the rules if I don’t. I always come to work clean shaven in a wrinkle...
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...Homework 1 1. Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate. • • The initial outlay equals ________. The annual incremental after-tax cash flow from operations for year 1 is ________. 2. Nuff Folding Box Company, Inc. is considering purchasing a new gluing machine. The gluing machine costs $50,000 and requires installation costs of $2,500. This outlay would be partially offset by the sale of an existing gluer. The existing gluer originally cost $10,000 and is four years old. It is being depreciated under MACRS using a five-year recovery schedule and can currently be sold for $15,000. The existing gluer has a remaining useful life of five years. If held until year 5, the existing machine's market value would be zero. Over its five-year life, the new machine should reduce operating costs (excluding depreciation) by $17,000 per year. Training costs of employees who will operate the new machine will be a one-time cost of $5,000 which should...
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