...Question 1 Calculate the Company’s Weighted Average Cost of Capital Bank Overdraft EAR = (1+i/n )^n - 1 (1 + 0.08/12) ^ 12 -1 = 0.0830 Cost of Bank overdraft: = EAR (1-t) = 0.830 (1-0.30) = 0.0581 Debentures Current market price = $309.29 Face value = $300.00 Annual coupon rate = 13.5% ( paid half yearly) Further flotation cost ( if any) = $1.50 (300* 13.5%) = 40.5/2 = 20.25 Present value of annuity = $20.25 Pmt = $20.25 MP= Pmt * 1 – ( 1)/ (1+i)^n i 20.25 * 1 – 1/ ( 1+ 0.00675)^ 14 0.0675 = $ 179.78 Discount back the face value to 0 = FV….. ( 1+i)^n = 300.00 = $120.21 (1+0.0675)^14 EAR = (1+6.4084%) ^ 2 -1 = .1323 Cost of debt = EAR ( 1- t ) .1323 ( 1-0.30) = 0.0926 Cost of Preference Shares (Keps) = Dividend Market Price 1.10 = 0.1358024 8.10 Dividend per share= 275000 = $1.10 250000 Cost of Ordinary Share Capital (Keos) = D 0 * ( 1+G) + G ...
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...This paper will give a financial analysis of two corporate moguls: Tyco International and General Electric Corporation. Through thorough research of each company’s shareholder’s equity, preferred stock equity, market capitalization, net profit margins and other factors, this paper will review which company’s strategy has presented a greater risk to the shareholder’s investment. It will also determine whether the investors who are assuming the risk have been rewarded with a greater investment. To research this effectively, a few figures are necessary to be stated. To begin with each company’s shareholder’s equity needs to be determined. Tyco's annual report listed that their Stockholders' Equity for 2007 was $15,624,000 and no Preferred Stock had been issued; therefore, $15,624,000 was the Common Shareholders' equity (total equity less any preferred stock equity). General Electric’s annual report listed that their Stockholders' Equity for 2007 was $115,559,000 and that no Preferred Stock had been issued; therefore, $115,559,000 was the Common Shareholders' equity (total equity less any preferred stock equity). Next the market capitalization was researched. This is done by taking the total amount of common stock shares outstanding and multiplying that by the latest stock price. General Electric’s per share price on April 18th was $32.69 and had 9,987,599,000 Common Stock shares outstanding, which means that the Market Capitalization calculated to: $326,494,611,310 (stocks...
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...current ratio of 1.77 in Year 12 places Company G well below the first quartile ratio of 3.1 and solidly between the second and third quartile ratios of 2.1 and 1.4, respectively. This represents a weakness in the position of Company G, as even though the company is above the third quartile the trend of decline in current ratio places it in a position of potential instability. Special attention should be paid to improving the current ratio of Company G in Year 13. Acid-Test Ratio = Cash + Short Term Investments + Net Acct. Receivable / Average Acct. Receivable The acid-test ratio is a representation of the ability of Company G to pay its short-term obligations from cash reserves or other accounts easily liquidated into cash, such as short-term investments and/or accounts receivable. The acid-test ratio specifically excludes inventory and other current assets not easily liquidated into cash. The calculation in this instant is (Cash + Short Term Investments + Net Accounts Receivable) / Current Liabilities. This...
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...there were several areas of concern. Years seven and eight shows the most areas of concern for the company. However, while analyzing years six and seven, there were some positive results for the company. During years six and seven, there was an increase in revenue. Net sales increased by 33.3% increase. The cost of goods sold also increased. This was an increase of 31.8%. The fact of increase with both of these analysis showed positive results. The increase of net sales should always be more than the increase in cost of goods. If this does not happen, than the company is spending more on parts and supplies than they are making on goods sold. This also showed the company was able to sell more bikes at a lower cost than they had to spend on the supplies needed to make the bikes. This was proven by the company showing a 37.5% increase in gross profit. The Income Statement Horizontal Analysis showed an increase in the company’s total selling expenses. This increase was at 33% for years six and seven. This can be a positive due to selling expenses being variable expenses; expenses that will increase or decrease, depending on the amount of goods needed to meet the amount of sales and the amount of net sales. This was seen when the...
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...year at his age of 28 and he can enroll both program now. The following summary table shows the information he can use to make the decision. Option | Dewey and Louis | Ritter College ,Wilton Univ (2 year program) | Mount Perry College (1 year program) | Tuition | / | 65000 | 80000 | Books and other supplies | / | 3000 | 4500 | Health insurance plan | / | 3000 | 3000 | Room and board expenses | / | 2000 | 2000 | Expect salary(annul) | 60000 | 110000 | 92000 | Growth rate | 3% | 4% | 3.5% | Bonus (tax free) | / | 20000 | 18000 | Average Tax rate | 26% | 31% | 29% | Discount rate | 6.5% | 6.5% | 6.5% | Based on the information above, we can find a timing that gong to the Business School is not a good deal because the net present value of future cash flows would be lower than that of staying at the current job. In addition, we assume Ben will retire at the end of 68 years old; and after T years, it will be worse for Ben to get MBA compared with continuing his current job. We will compare the NPVs of these 3 options at the beginning of (T+1) year so that we can get T. Option 1: if Ben still working at current job NPV1= Option 2: if Ben starts to get MBA in Ritter College after T years NPV2= Option 3: if Ben starts to get MBA in Bradley School after T years NPV3= T | NPV1 | NPV2 | NPV3 | 9 | 1067754.522 | 1208708.69 | 1104289.74 | 10 | 1079226.637 | 1176398.654 | 1079143.186 | 11 | 1089706...
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...acquisition of an additional goalscorer to complement its newly acquired player, Roman Pavlyuchenko, or possibly doing both. Daniel Levy, the team’s chairman, believes that building a new stadium will “modernize the club’s match-day facilities.” He believes that the new stadium is also a “crucial component of long-run success in the Premiership, in part because the added revenues would allow the Spurs to compete more aggressively in the acquisition market for superstar international players.” Tottenham lost two of its star players to a higher-end team. The stadium project is expected to increase attendance revenue by 40 percent and sponsorship revenues by 20 percent. Signing a new goalscorer is forecasted to give Tottenham an increase of 12 net goals per season. This would increase its ranking in the Premiership, which would lead to higher revenues. It is important to conduct three separate valuations because if Tottenham acquires the new player without building a stadium the team would probably not gain much of the revenue increases that would result from the team’s performance. Acquiring a new player and building a new stadium must be valuated separately because if the club does not get a newer stadium similar to the top teams in the league, then it would only get one-quarter of the anticipated revenue improvements associated with the team’s expected improvement. One of the risks associated with building the new stadium is relying on wealthy investors to help finance the potential...
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...the fiber optic communications business. The market was growing, the demand increased and the competition was not too severe. Eventually, the company established two additional manufacturing facilities and increased its inventory to meet the needs. Current Situation Despite Signal Cable had enjoyed profits in past few years, the accounting statements showed a lower net profit margin. Furthermore, the cash balance and the stock price had fallen recently. Jay Smith, Assistant to the President, has now the challenge to prepare some feasible answers and suggestions for his boss, Joe Mathis, who has to inform the shareholders about the current situation. Questions of the Case Study 1. Why has the stock price fallen despite the fact that the net income has increased? A company’s stock price is depend on its demand and supply in the stock market. There are many factors to influence an investor’s decision of buying or selling the company’s stock. Those factors such as economy of the country, government policy, company’s financial statement and so on. Despite the Signal Cable’s income statement showed that the net income has increased, but there are some problem in its balance sheet. The main problem is the company’s increasing debts and liabilities, which caused by the recent investments in two additional manufacturing...
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...Corporation is trying to determine which financial policy, between aggressive, moderate, or conservative, will best fit their business. We will discuss these options and include the calculations that will show the expected rate of return on stockholders’ equity, net working capital position, and current ratio. According to Gitman (2009), profitability is “the relationship between revenues and costs generated by using the firm’s assets-both current and fixed-in productive activities” (p. 639). The firm chooses to increase their profits but must do so by increasing revenue and or decreasing cost. Risk is “the probability that a firm will be unable to pay its bills as they come due” (Gitman, 2009, p. 639). If a firm’s net working capital is high it is a lower risk because it has the funding to pay its bills. The trade-off between profitability and risk is done by changing current assets and current liabilities, separately, to identify the impact of each and decide which fits best with the firm. Expected Rate of Return on Stockholder’s Equity Expected rate of return on stockholder’s equity is determined by taking the percentage of return (profit) that was gained on each dollar that the stockholder invested. The calculation is net income divided by stockholders’ equity. In the model of Scott, shown in Table 1, we see that the expected rate of return for the aggressive policy is 6.89%, moderate policy is 6.81%, and conservative policy is 6.73%. These percentages show that, by using six...
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...Financial Statement Analysis Project – Zillow, Inc. Part 1: Company Information What is your company’s name and ticker symbol? Zillow, Inc. (Z) What is your company’s most recent fiscal year end? December 31st, 2014 In what state is your company incorporated? Washington When was the company incorporated? December 13th, 2004 In what reportable segments or industries does your company operate? Sector: Internet and Software, Financial Industry: Data processing and preparation (SIC 7374), Data Processing, Hosting, & Related Services (NAICS 518210), Zillow, Inc. operates a real estate information marketplace dedicated to providing vital information about homes, real estate listings and mortgages and enabling homeowners, buyers, sellers and renters to connect with real estate and mortgage professionals. In what fiscal quarter does your company earn the most revenue? Zillow makes their most revenue during their fiscal fourth quarter. They gradually earn more revenue throughout the year (first quarter being the smallest). For the past 5 years, the fourth quarter has accounted for 29-31% of the yearly revenue stated on the annual income statement. What types of products and services does your company sell? Zillow serves the full lifecycle of owning and living in a home: buying, selling, renting, financing, remodeling and more. They operate under a living database of more than 110 million U.S. homes - including homes for sale, homes for rent and homes not...
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...line of credit could not solve the problem. When banks demanded payment, severity of the issue came to the attention of the owners of Reeds Clothier. Now they are trying to analyzing financial problem and finding solution. Q. Calculate a few ratios and compare Reed's results with industry averages. (Some industry averages are shown in Exhibit 4.) What do these ratios indicate? Answer: Formulae: Current Ratio = current assets/current liabilities Quick Ratio = (current assets-inventory)/current liabilities Gross Profit Margin = EBIDTA/sales Net Profit Margin = PAT/Sales Ratio Reeds Industry Current Ratio 2.0 2.7 Quick Ratio 0.94 1.6 Gross Profit Margin 29.8% 33% Net Profit Percentage 4.2% 7.8% Reed’s has current ratio lower than the industry average which indicates that company may be experiencing liquidity problem. Low current ratio means company may find it difficult to meet short term debt requirements. In the same line, quick ratio of Reeds is...
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...income with a 154.6% increase. With that explosive growth the company had a 38.1% increase in interest income of $1600 displaying a strength respectively. The company’s earnings before income taxes had tripled since year 6 with an impressive increase of 313.4%. Provisions for income taxes and net earnings both experienced the same increase of 313.4% from year 6 to 7. The company experienced a 16.3% decline in gross profit from year 7 to 8. The gross profit reflects the company’s residual income after it has sold its products and deducted the cost to produce their products. The 16.3% decline can be viewed as a weakness. Although the company relies heavily on word of mouth advertising the company had a 16.3% decline in advertising. Although the product is well known around racers, relying on just word of mouth and reducing the budget on advertising is a sign of weakness. In the previous year the company had an increase in their advertising to 37.5% which may reflect why the company had such high net earnings. Operating income has drastically been reduced by 69.1% from year 7 to 8 and is directly impacted by the gross profit. Earnings before income taxes, provision for income taxes, and net earnings show the largest reduction of 81.6% from year 7 to 8. The balance sheet of Competition Bikes Inc. clearly displays the change of cash and cash equivalents. From year 7 to 8 there was a...
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...percentage of change for the years. This analysis will consider both items, and will also be comparing years 6 and 7 and 7 and 8. Year 7 The analysis of years 6 and 7 shows a positive result for Competitive Bikes. Revenue There was a positive increase in revenue for years 6 and 7. Net sales increased by $1,495,000 between years 6 and 7. This was a 33.3% increase for Competition Bikes. The cost of goods sold increased $1,048,000. This was a 31.8% increase. The fact that net sales increased by 33.3%, and cost of goods sold increased by only 31.8% was a significant factor in these two years. This was a positive result, because net sales increased more than what the cost of goods sold increased. Competition Bikes found a way to sell more bikes at a lower cost for the company. This is why the company had an increase of 37.5% in gross profit. Selling Expenses Total selling expenses increased by 33% between years 6 and 7. This was expected, because most of the selling expenses are considered variable expenses. Variable expenses are expenses that increase as production and sales increase. Sales commissions, distribution network support, and transportation out are all considered variable expenses. Knowing that net sales increased by 33.3%, and these expenses increased by 33% shows they are variable expenses. This increase was totally expected. Advertising expenses increased by...
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...percentage of change for the years. This analysis will consider both items, and will also be comparing years 6 and 7 and 7 and 8. Year 7 The analysis of years 6 and 7 shows a positive result for Competitive Bikes. Revenue There was a positive increase in revenue for years 6 and 7. Net sales increased by $1,495,000 between years 6 and 7. This was a 33.3% increase for Competition Bikes. The cost of goods sold increased $1,048,000. This was a 31.8% increase. The fact that net sales increased by 33.3%, and cost of goods sold increased by only 31.8% was a significant factor in these two years. This was a positive result, because net sales increased more than what the cost of goods sold increased. Competition Bikes found a way to sell more bikes at a lower cost for the company. This is why the company had an increase of 37.5% in gross profit. Selling Expenses Total selling expenses increased by 33% between years 6 and 7. This was expected, because most of the selling expenses are considered variable expenses. Variable expenses are expenses that increase as production and sales increase. Sales commissions, distribution network support, and transportation out are all considered variable expenses. Knowing that net sales increased by 33.3%, and these expenses increased by 33% shows they are variable expenses. This increase was totally expected. Advertising expenses increased by...
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...figures are shown to have doubled within the financial year from 46% in 2014 to 92% in 2015. This is able to suggest that the organization is generating a Net Profit of 92 pence for every £1 invested which also illustrates that the business is performing well compared to the average businesses as the Industry average states that the average ratio for the ROCE is 38%. The Gross Profit margin of the organization between the years 2013-2015 is seen to be better than that of the Industry Average (36%). However, the organizations Gross Profit margin is seen to have decreased by 3% in 2015 compared to the margin of 2014- which demonstrates that the organization is performing better than the Industry Averages but isn’t performing to its expectations due to the decrease during in the financial year of 2015. The Net Profit of the organization is shown to have decreased between the years 2013-2015 where the Net Profit is shown to have fallen 19% between the financial years. This is able to illustrate that the organizations expenses could possibly be expanding over the years, which as a result is causing the costs to be high and resulting into the decrease in profits. The Net Profit of the organization between the years is also lower than the Industry average (38%), which is able to imply the organization isn’t generating as much Net Profit as they should be. The Stock Turnover of the organization is shown to have increased over the years, as the stock turnover in 2015 is 29 more days...
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...example, you may be willing to pay only $0.90 today for a promise to receive $1.00 one year from today”. (Edmonds, Edmonds, Olds, McNair, Tsay, Schneider, 2007) This technique analysis the amount of money received in future payments and calculates the value of that money as if it were in hand today. Payback Method The Payback method does not take TVM into consideration; however, it can be utilized to evaluate fast turnaround investments. The payback method “shows how long it will take to recover the initial cash outflow (the cost) of an investment. The formula for computing the payback period, measured in years, is as follows”. (Edmonds, Edmonds, Olds, McNair, Tsay, Schneider, 2007) Payback period = Net cost of investment \Annual net cash inflow. This can be better illustrated by taking a $10,000 investment that...
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