(e) The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue. Student Answer: d Instructor Explanation: Answer is: d Chapter 20, pp. 791 - 798, 800 - 803 Points Received: 20 of 20 Comments: 2. Question : (TCO D) Europa Corporation is financing an ongoing construction project.
What is the expected dividend yield and the expected capital gains yield? Explain the difference in the required return estimates from the value line to the WSJ price data? The expected return is 7.72% The expected dividend yield =2.22% and the capital gains yield is the growth rate of 5.50%. The required return estimates have decreased and the stock price has increased is because it is believed the company has less risk now than it did when the Value Line estimates were released. 3.
This would also help improve the company’s inventory turnover ratio from 4.7 to the industry average of 6.1. The firm’s debt ratio anticipation of 44.17% is better than the market average and will allow the company to pay down its debt quicker than competitors and have more cash on hand. The extra cash on hand provides more liquidity and is attractive to potential investors. However, these numbers are based on high projections. If such numbers are not reached the company is considered underperforming and makes an unattractive appeal to investors.
The firm recently purchased new equipment due to a fire which destroyed their previous equipment. The new equipment has increased their production capability making this new expansion possible. KEY ISSUES: There are a multitude of key issued used in the NPV calculation and decision to accept the project. Issue 1: Risk - Declining profit margins - Negative affect from A/R and A/P - Lander distributors not as creditworthy as current market - Eastern distributors and retailers lack of collateral to secure bank loans - Essentially financing distributors and retailers in the east - Capital expenditures and debt are increasing simultaneously - - lack of debt repayment structure - future liquidity may decline - pays dividends/ plans to increase them • Issue 2 Risk Free Rate - Rate: 8.25% - Calculated: page 3 footnote • Issue 3: Cost of Debt - 11% - Calculated: page 3, paragraph 3 • Issue 4: Beta - Beta 1.45 - Calculated: - unlevered industry beta 0.88 (yahoo finance) - applied BB’s debt to equity ratio to 0.88 (unlev industry beta) - Calculated firms beta using formula {levered beta = unlev beta * (1+[1-T]*[D / E]) • Issue 5: Cost of Equity - CoE ___% - Calculated: - CapM - Real German historical Rp of *-0.8%* during 1989 to 2014 - used DAX’s annual historical return • Issue 6: WACC - WACC ___% • Issue 7: Firms Growth Rate - BB perpetual growth rate at 2.45% -Calculated: - used Germany’s historical
What steps do you recommend the company take? Base your forecasts on the 1996 performance. • Finance it through debt; it has so little and is a big company by this point. But don’t take too much, still achieve a DPO reduction so that the debt is minimal • No, it will not be possible. • Would need to reduce working capital by $260M • Would need to increase gross margins by 328bps • If growth is so important, then a price raise would likely slow that.
MF10: Corporate Finance Pinkerton Case Due March 30, 2011 INTRODUCTION Pinkerton and CPP are security guard firms. CPP, a younger firm that is looking to grow, is considering the acquisition of Pinkerton, an older firm with an impeccable reputation. Its plan if the acquisition goes through, is to reduce Pinkerton’s revenues with a simultaneous increase in price, thus increasing profits at the expense of size. Furthermore, the merger will create synergies, mostly involving a decrease in operating costs for CPP. Your first job will be to price this acquisition using a WACC method.
Assuming Dell sales will grow 50% in 1997, how might the company finance this growth? Might it be able to finance this growth internally? How much would working capital need to be reduced and / or profit margin increased to achieve internal financing? What steps do you recommend the company take? 5.
Concerning that notes receivable from affiliates is significant in 2004, problems with associates being able to cover cost of equipment and supplies. It seems there is a growth issue with their affiliates not being able to keep up. From 2002-2004 you see a significant number of
The Body Shop Case Recommendation Our recommendation for The Body Shop to fulfill its financing needs they will need to borrow 82.4 million GBP for 2002, 106.5 million GBP for 2003, and 132.9 million GBP for 2004. This financing need will be relatively high we believe, thus we would advise that The Body Shop cut back on unnecessary expenses, discontinue product lines that don't sell well, close stores that not make good revenue, expand more in ecommerce, and increase profit margins accordingly for a better net profit. For better growth of the company we suggest The Body Shop look more closely in to making products that have a lower cost to produce and create more new products that would differentiate them from its competitors. Also seeing that The Body Shop doesn’t have a marketing or advertising department we recommend they look more into possibility creating one to increase its presence. Company Background The Body Shop opened its first store on March 26th 1976 in Brighton England.
What are the critical moments that TerraCycle faced, and how did they define the firm? History TerraCycle includes a lot of moments and critical challenges. Beginning with the disappointing place in the business plan competition, so the whole foundation of the company to be made. As you are able to implement your idea using worm gins an investor, had to climb a little money. The testiest fight was raising capital and get investors on board.