...provide decision makers with relevant and reliable information to help them make better decisions. Examples include information for people making investments, loans, and business plans. 2. Technology reduces the time, effort, and cost of recordkeeping. There is still a demand for people who can design accounting systems, supervise their operation, analyze complex transactions, and interpret reports. Demand also exists for people who can effectively use computers to prepare and analyze accounting reports. Technology will never substitute for qualified people with abilities to prepare, use, analyze, and interpret accounting information. 3. External users and their uses of accounting information include: (a) lenders, to measure the risk and return of loans; (b) shareholders, to assess whether to buy, sell, or hold their shares; (c) directors, to oversee their interests in the organization; (d) employees and labor unions, to judge the fairness of wages and assess future employment opportunities; and (e) regulators, to determine whether the organization is complying with regulations. Other users are voters, legislators, government officials, contributors to nonprofits, suppliers and customers. 4. Business owners and managers use accounting information to help answer questions such as: What resources does an organization own? What debts are owed? How much income is earned? Are expenses reasonable for the level of sales? Are customers’ accounts being promptly collected? 5. Service...
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...the shareholders' equity account for this firm? Shareholders' equity $_________ How much is net working capital? Net working capital $_________ 2. Which one of these accounts is classified as a current asset on the balance sheet? • intangible asset • accounts payable • preferred stock • inventory • net plant and equipment Complete FIN 571 week 2 connect problems Answers here FIN 571 Week 2 Connect Problems 3. It is easier to evaluate a firm using its financial statements when the firm: • is a conglomerate. • is global in nature. • uses the same accounting procedures as other firms in its industry. • has a different fiscal year than other firms in its industry. • tends to have one-time events such as asset sales and property acquisitions. 4. The cash flow resulting from a firm's ongoing, normal business activities is referred to as the: • operating cash flow. • net capital spending. • additions to net working capital. • cash flow to retained earnings. • cash flow to investors. FIN 571 final exam (Newest) download now FIN 571 Final Exam (Newest) 5. Which one of these is a non-cash item? • depreciation • interest expense • current taxes • dividends • selling expenses 6. Sankey, Inc., has current assets of $5,000, net fixed assets of $23,300, current liabilities of $4,450, and long-term debt of $11,000. (Do not round intermediate calculations.) What is the value of the shareholders' equity account for this firm? Shareholders' equity $_________ How...
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...Sergey Chernenko Ohio State University C. Fritz Foley Harvard Business School and NBER Robin Greenwood Harvard Business School and NBER March 2012 Abstract Standard theories of corporate ownership assume that because markets are efficient, insiders ultimately bear all agency costs that they create and therefore have a strong incentive to minimize conflicts of interest with outside investors. We argue that if equity is overvalued, however, mispricing offsets agency costs and can induce a controlling shareholder to list equity. Higher valuations may support listings associated with greater agency costs. We test the predictions that follow from this idea on a sample of publicly listed subsidiaries in Japan. Subsidiaries in which the parent sells a larger stake and subsidiaries with greater scope for expropriation by the parent firm are more overpriced at listing, and minority shareholders fare poorly after listing as mispricing corrects. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns when repurchases are announced. * We thank Malcolm Baker, Mihir Desai, Masako Egawa, Alp Ercil, Yasushi Hamao, Sam Hanson, Naoki Kamiyama, David Matsa, David Scharfstein, Andrei Shleifer, Jeremy Stein, Kenji Wada, Lucy White, and seminar participants at Georgetown, Harvard, IESE, the NBER Japan program, the NBER Law and Economics Program...
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...provide decision makers with relevant and reliable information to help them make better decisions. Examples include information for people making investments, loans, and business plans. 2. Technology reduces the time, effort, and cost of recordkeeping. There is still a demand for people who can design accounting systems, supervise their operation, analyze complex transactions, and interpret reports. Demand also exists for people who can effectively use computers to prepare and analyze accounting reports. Technology will never substitute for qualified people with abilities to prepare, use, analyze, and interpret accounting information. 3. External users and their uses of accounting information include: (a) lenders, to measure the risk and return of loans; (b) shareholders, to assess whether to buy, sell, or hold their shares; (c) directors, to oversee their interests in the organization; (d) employees and labor unions, to judge the fairness of wages and assess future employment opportunities; and (e) regulators, to determine whether the organization is complying with regulations. Other users are voters, legislators, government officials, contributors to nonprofits, suppliers and customers. 4. Business owners and managers use accounting information to help answer questions such as: What resources does an organization own? What debts are owed? How much income is earned? Are expenses reasonable for the level of sales? Are customers’ accounts being promptly collected? 5. Service...
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... Quick ratio = ($11,270,000 – 4,720,000) / $15,030,000 Quick ratio = 0.44 times Total asset turnover = $128,700,000 / $83,550,000 Total asset turnover = 1.54 times Inventory turnover = $90,070,000 / $4,720,000 Inventory turnover = 19.22 times Receivables turnover = $128,700,000 / $4,210,000 Receivables turnover = 30.57 times Total debt ratio = ($83,550,000 – 42,570,000) / $83,550,000 Total debt ratio = 0.49 times Debt-equity ratio = ($15,030,000 + 25,950,000) / $42,570,000 Debt-equity ratio = 0.96 times Equity multiplier = $83,550,000 / $42,570,000 Equity multiplier = 1.96 times Interest coverage = $18,420,000 / $2,315,000 Interest coverage = 7.96 times Profit margin = $9,663,000 / $128,700,000 Profit margin = 7.51% Return on assets = $9,663,000 / $83,550,000 Return on assets = 11.57% Return on equity = $9,663,000 / $42,570,000 Return on equity = 22.70% 2. Regarding the liquidity ratios, East Coast Yachts current ratio is below the median industry ratio. This implies the company has less liquidity than the industry in general. However, the current ratio is above the lower quartile, so there are companies in the industry with lower liquidity than East Coast Yachts. The company may have more predictable cash flows, or more access to short-term borrowing. The turnover ratios are all higher than the industry median; in...
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...CHAPTER 10 The Cost of Capital Problem solving Lidija Dedi 9-1 Problem 1: Your company’ stock sells for $50 per share, its last dividend was $2, its growth rate is a constant 5%, and the company will incur a flotation cost of 15% if it sells new common stock. What is the firm’s cost of new equity? 9-2 Problem 2: Alpha’s stock currently has a price of $50 per share and is expected to pay a year-end dividend of 2,50 per share. The dividend is expected to grow at a constant rate of 4% per year The company has insufficient retained earnings to fund capital projects and must therefore, issue new common stock. The new stock has an estimated flotation cost of $3 per share What is the company’s cost of equity capital?9-3 Problem 3: Current market price of the firm’s stock is $28 Its last dividend was $2,20 Its expected dividend growth rate is 6% Calculate cost of retained earnings? 9-4 Problem 4: The company capital structure is 70% equity and 30% debt The yield to maturity on the company’s bonds is 9% The company’s year-end dividend is forecasted to be $0,80 a share The company expects that its dividend will grow at a constant rate of 9% a year The company’s stock price is $25 The company’s tax rate is 40% 9-5 The company anticipates that it will need to raise new common stock this year Its investment bankers anticipate that the total flotation cost will equal 10% of the amount issued Assume the company accounts...
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...Finance 316 practice problems for final exam 1. True or False: According to the CAPM, a stock's expected return is positively related to its beta. 2. In practice, the market portfolio is often represented by: A. a portfolio of U.S. Treasury securities. B. a diversified stock market index. C. an investor's mutual fund portfolio. D. the historic record of stock market returns. 3. A stock's beta measures the: A. average return on the stock. B. variability in the stock's returns compared to that of the market portfolio. C. difference between the return on the stock and return on the market portfolio. D. market risk premium on the stock. 4. If the slope of the line measuring a stock's historic returns against the market's historic returns is positive, then the stock: A. has a beta greater than 1.0. B. has no unique risk. C. has a positive beta. D. plots above the security market line. 5. One of the easiest methods of diversifying away firm-specific risks is to: A. buy stocks with a beta of 1.0. B. build a portfolio with 20-25 individual stocks. C. purchase the shares of a mutual fund. D. purchase stocks that plot above the security market line. 6. An investor was expecting a 18% return on his portfolio with beta of 1.25 before the market risk premium increased from 8% to 10%. Based on this change, what return will now be expected on the portfolio? A. 20.0% B. 20.5% C. 22.5% D. 26.0% 7. If a two-stock portfolio is equally invested in stocks with betas of...
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...Ratios and Financial Planning at S&S Air, Inc. 1, Profitability Ratios 1. Profit margin = net income/sales Profit margin = $1,005,600 / $20,077,000 Profit margin = 0.0501 or 5.01% 2. Return on assets (investment) = net income/total assets Return on assets = $1,005,600 / 15,453,900 Return on assets = 0.0651 or 6.51% 3. Return on equity = net income/stockholder’s equity Return on equity = $1,005,600 / $9,466,820 Return on equity = 0.1062 or 10.62% Asset Utilization Ratios 4. Receivables Turnover = sales (credit)/receivables Receivables turnover = $20,077,000 / $1,534,680 Receivables turnover = 13.08 times 5. Average collection period = accounts receivable/average daily credit sales Average collection period = 365 days / ($20,077,000 / $1,534,680) Average collection period = 28 days 6. Inventory turnover = sales/inventory Inventory turnover = $14,985,000 / $1,238,500 Inventory turnover = 12.10 times 7. Fixed asset turnover = sales/fixed assets Fixed asset turnover = $20,077,000 / $12,315,680 Fixed asset turnover = 1.63 times 8. Total asset turnover = sales/total assets Total asset turnover = $20,077,000 / $15,453,900 Total asset turnover = 1.30 times Liquidity Ratios 9. Current Ratio = current assets/current liabilities Current ratio = $3,138,220 / $2,162,080 Current ratio = 1.45 times 10. Quick Ratio = current assets – inventory/current liabilities Quick ratio = ($3,138...
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...Return on Assets Assets are your firm’s total assets, not just what the company owns. Return on assets is calculated by dividing net operating income after tax (but before other income or expenses like interest expense) by total assets. Return on assets can be compared to other returns with similar or different risk profiles. For instance, if your business is only returning 4% annually (after tax) compared to, say, a 6% yield on a junk municipal bond, one could conclude that the business is under-performing for the risk taken by having all assets tied up in an non-liquid privately held business – its own. If few would accept such a low rate of return in general, particularly considering the risk of investing in a privately held business, why would someone do it in their own business? It all comes down to leverage and how it’s used. Leverage is the use of debt to, hopefully, increase returns. Most people learn the basic art of leveraging when they purchase their first home. Let’s say you put 20% down (equity), financed the remaining 80% with a mortgage, and the house is appreciating at 5% annually (generous if not totally unrealistic). Using these figures, the appreciation on the equity, your down payment, would be 25% due to the leverage. A novice investor would feel like a real genius but we’re not looking at the right number. A common mistake is to discuss return on assets and return on equity without making a distinction between the two. In the example above, the return...
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...[pic] Faculty Communication, Media & Music Exam front sheet |Name exam |Financial Management | |Code exam |2410MJ123A | |Date |January 20th 2011 | |Duration | 11.30 – 13.30 | |Programme |ICM / IMEM | |Location |Rotterdam / The Hague | |Academic Year |2010-2011 | |Year |1 / 2 / 3 / 4 | |Term |1 / 2 / 3 / 4 | |Module leader |Unco Calkoen | |Teachers |Unco...
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...philosophy of believing that they could get a superior return over the long run using a conservative, risk-averse and quality-oriented approach. Zeus have been measuring it’s return in an absolute basis however Abbott demanded for it to be in risk adjusted basis to be better determine if Zeus outperform the relevant indices. The main problem with the current measure is that it did not take risk into consideration. The main aim in this case study is to determine if the current performance evaluation is sufficient or a better risk adjusted measure could be form. Other than that, we would also take into consideration of the difference between Zeus with its main competitors and how different type of investors would have different investment strategy due to their different risk preference. Problem with current measure As the current fund performance measurement consist mainly of holding period and benchmark return, these return have weaknesses that does not allow it to be a sufficient measurement. As a HPR generally calculated based on determining what the total return is earned from holding the investment for a specific period of time. The advantage of it is that it is easy to calculate and understand by investors, at the same time taking into account of the income and growth. However it did not take into account of time value of money, that make the return inaccurate for a longer time period. Other than that, the holding period return is based on historical value thus generally not...
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...Finance 355; 7:00pm, Cutler Long Term Financing Paper | CISCO Inc. | Team Advantage: | CAPM Model & Discounted Cash Flows Capital Assets pricing and Discounting Cash flow are the widely used valuation methods for investment. ¾ of US companies using CAPM for Capital budgeting. General idea behind a CAPM is that investors need to be compensated for the risk that they are taking. Under the CAPM we are observing how much return Cisco’s investors are expecting. For the Calculation CAPM for CISCO we used numbers based off industry standards from S&P 500 and U.S. Treasury. CISCO Beta was calculated at 1.18 (source: http://finviz.com/quote.ashx?t=csco). For the risk free rate 0.17% was calculated based of the yearly US treasury rate from 2012 (source: http://www.treasury.gov ). 11.62% is the market risk based on the YTD return for the S&P 500 (source: http://money.cnn.com/data/markets/sandp/). 12.97% would be the expected/required return for CISCO. CAPM is calculated as follows: = 0.17% + 1.18 (11.79 -0.17) = 0.17+ 1.18 (11.79 – 0.17) = 1.35 (11.62) = 12.97% Discounted Cash Flow Model relies on future cash flow. It is described as "discounted" cash flow because cash in the future is worth less than cash today. DCF says that a company is worth all of the cash that it could make available to investors in the future. There are 3 approaches to DCF: PV, NPV, DDM. We need 3 input for DCF model: projected CF, discount rate and length of time for ongoing project...
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...Final Exam Chapter 2 Problem 2-4, Pearson Brothers recently reported an EBITDA (Earnings before interest, taxes, depreciation, and amortization) of $7.5 million and net income of $1.8 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization? (income statement) The taxable income would be 7.5 less 2 million less depreciation and amortization. $5.5m - $1.8m is the total available to pay taxes and depreciation. $370,000 to pay depreciation and taxes. 3.7-Depreciation =(5.5-Depreciation)*40% 3.7-2.5=(5.5-2.5)*40% (2.0)*40%=1.2 $2,500.000 Depreciation & Amortization Problem 2-7, The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. What are the firm’s income tax liability and its after-tax income? What are the company’s marginal and average tax rates on taxable income? (Corporate Tax Liability) Income $365,000 Less Interest deduction (50,000) Plus: Dividends received 4,500 Taxable income $319,500 70% of dividends received are excluded from taxes = $15,000(1 - 0.70) = $4,500 Tax = $22,250 + ($319,500 - $100,000)*0.39 Tax= $22,250 + $85,605 = $107,855 Marginal tax rate is 39 percent Average tax rate is $107,855/$319,500 = 33.76%. Chapter 3 Problem 3-8, Assume you are given...
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...Elier Suarez Fin4514 M,W 9-10:15 Chapter 5 homework Problem 1: A. An indexed investment represents a high diversified type of securities without the risk of systematic market exposure. This form of risk cannot be diversified within the company because it represents that one company’s fragility within the market itself. B. a. An active approach toward rebalancing the policy brings competent flexibility to multiple time periods and a more favorable strategic asset allocation. b. Indexing to asset increases the portfolios time frame and returns will not beat the market. The Index will mirror the value but won’t duplicate an independents stocks deficiency. c. Adopting a policy portfolio different from your peers can be viewed as aggressive and will differentiate RFM’s returns. Policy should reflect the companies risk willingness and asset allocation should be represented as cross-sectional. C. The type of investment program being suggested is tactical asset allocation because it involves making short-term adjustments to asset-class weights. This is primarily based on short term predictions among asset classes of performance. D. The asset-only approach ignores the investor’s liabilities while the ALM approach adopts the asset allocation that is best to support the liabilities. A dynamic approach to asset allocation benefits between multiple active periods. On the other hand, a major disadvantage to this approach is that is costly and...
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...CHAPTER 14 Performance Measurement ASSIGNMENT CLASSIFICATION TABLE | | | | |Brief | | | |A | |B | |Study Objectives | |Questions | |Exercises | |Exercises | |Problems | |Problems | | | | | | | | | | | | | |1. Understand the con- | |1, 2, 3, 4 | |1, 2, 3 | |1, 2 | | | | | |cept of sustainable earnings and indicate | | | | | | | | | | | |how irregular items are presented. | | | | | | | | | | | | | | | | | | | | | | | |2. Discuss the need for comparative analysis| |5 | | | | | | | | | |and identify the tools | | | | | | | | | | | |of financial statement analysis...
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