In this context, what kinds of problems can arise? Solution: In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect (vote) the board of directors of the corporation, who in turn appoint the firm’s management (CEO). This separation of ownership from control in the corporate form of organisation is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders.
A. Financial management B. Profit maximization C. Agency theory D. Social responsibility 8. Which of
d. Prices will decline and interest rates will rise. e. There will be no changes in either prices or interest rates. 2. Which of the following is likely to lead to an increase in the cost of funds? a. Companies’ production opportunities decline, leading to a decline in the demand for funds.
Case Study 3-5 Discuss the qualitative concept of comparability. In your opinion, would the financial statements of companies operating in one of the foreign countries listed above be comparable to a U.S. company’s financial statements? Explain. The qualitative concept of comparability from our foreign countries to the United States is not comparable. At this time, our foreign countries cannot be compared to United States because of the size of the marketplace of the country (Schroeder, Clark, & Cathey, 2011).
11) A zero-coupon bond A. pays no interest B. pays interest at a rate less than the market rate C. is a junk bond D. is sold at a deep discount at less than the par value 12) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 5 years? A. $3,525.62 B. $5,008.76 C. $3,408.88 D. $2,465.78 13) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years? A.
The following are the equations of the IS-LM model, here including a feature that taxes are not simply given but depend on income through a tax function, T(Y). IS Curve Y = C(Y - T(Y)) + 1® + G LM Curve: M /P + L(r,Y) a. The Fed Funds rate was near zero in 2010. At such low interest rates, it would presume that the economy will be stimulated and promote economic growth. It appears not to be the case.
1 B. 2 C. 3 D. 4 8. Which one of the following statements about IPOs is not true? A. IPOs generally underperform in the short run. B. IPOs often provide very good initial returns to investors.
Jones sustainable growth rate: g*=RT*ROA, so compare with actual sales growth, we can make the conclusion Jones well managed its growth through year of 2004 to 2007. As Jones doing low margin business, so should avoid high financial leverage ratio as interest burden will be heavy. First Quarter 2004 2005 2006 2007 Sales increase 18% 17% ROE 7.6% 13.6% 12.3% 2.0% Sustainable growth rate 7.6% 13.6% 12.3% 2.0% Profit Margin 0.9% 1.5% 1.34% 0.8% Assets turnover 2.76 2.88 2.86 0.70 financial leverage 3.20 3.12 3.23 3.49 Shareholder’s equity 31% 32% 31% 29% 2.Why had this profitable company had to borrow more and more from the bank in the past and why does it need a new bank loan? From above table we can find out Jones collection period increased step by step and this will need more cash support that, payables period exceed 10 days from 2006, this will lost 2% discount from suppliers. As Jones sales growth rate is high than sustainable rate, so its net earning could not support increased account receivable and inventory.
The company’s proforma statements did not take into account any external factors such as a retail recession taking place. The amount of money invested in inventory is almost double what was forecasted for the nine-month period. Profit margin was only 10%, which was much lower than the forecasted 15-30%. By October of 1995 it should have been obvious to SureCut Shears that sales were not keeping up with what was forecasted causing inventory to build up. Conclusion: If Fischer wants to be able to repay his loan he needs to be more accurate
To equity (levered free cash flow): Same as firm FCF and then less interest and any required debt amortization. 2. What are the four basic ways to value a company? Market comparisons/trading comps/comparable companies: Metrics, such as multiples of revenue, earnings and EBITDA like P/E and EV/EBITDA can be compared among companies operating in the same sector with similar business risks. Usually a discount of 10 percent to 40 percent is applied to private companies due to the lack of liquidity of their shares.