Ans): Laddering GIC(s) is a proven method of investing (also known as a laddering strategy) it can help you reduce the risk of interest rate fluctuations and increase your portfolio's overall return. Pros will be higher returns, every year 20% of your portfolio will mature and it decreases the cons of non-cashable GIC(s). Cons will be a bit more work and attention needed by the
The NPV for purchasing the technologies is 94.71 million and the NPV for developing the technologies is 127.24 million. From this point, developing the technologies is a better choice. 3. IRR (Internal Rate of Return), which indicates the annual rate of return on an investment that assumes we could reinvest the cash flow at the same return. The IRR for purchasing and development are 18.88% and 24.57% respectively.
Being able to track sales compared to the previous years’ numbers is a valuable tool in being able to track business. They use this information to forecast on where they think the business will be heading in the next week, month, or year. If the debt percent gets to high then they need to adjust the amount of liabilities that they have to bring that number down. Knowing the times interest earned ratio allows the managers to know at what percent the company is earning interest on its net income. Investors find this information lucrative because the more expendable cash a company has the more likely they are to pay out in dividends for the stock holders..
Net oncome does not tell the full story, nor does it truly represent the overall stability. In reviewing The Home Depot’s balance sheet the first item to present itself is the company´s reduction in present and long-term liabilities. The second thing is the almost six fold increase in the current installments of long-term debt. The company has eliminated nearly $1.7 billion in short-term debt, as well as successfully reducing the amount of payable income by nearly a billion dollars. This action will help the company down the road as fewer liabilities will result in less cash outflow, and place the company in a position to manage through the construction downturn.
What course of action should the firm take? Current Balance Sheet: Assets: $100 Debt: $10 Equity: $90 Optimal Balance Sheet: Assets: $100 Debt: $20 Equity: $80 c. As a firm initially substitutes debt for equity financing, what happens to the cost of capital, and why? When a firm substitutes debt for equity financing the cost of capital will initially decrease because the effective cost of debt is less than the growth of the cost of equity. d. If a firm uses too much debt financing, why does the cost of capital rise? If a firm uses the more and more debt for financing, the cost of capital will increase.
Answer | | If new debt is used to refund old debt, the correct discount rate to use in the refunding analysis is the before-tax cost of new debt. | | | The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. | | | The mechanics of finding the NPV of a refunding decision are fairly straightforward. However, the decision of when to refund is not always clear because it requires a forecast of future interest rates. | | | If a firm with a positive NPV refunding project delays refunding and interest rates rise, the firm can still obtain the entire NPV by locking in a low coupon rate when the rates are low, even though it actually refunds the debt
Despite scouting for smaller opportunities, a first round of $250 million funding may not be sufficient for Brazos to invest in any more than a few firms which gives them limited scope for diversification. This places greater pressure on a first time fund and in particular, Brazos’ motivation to add value by simply promoting organic growth in cash flow and operational efficiency in the hope of enhancing industry scale. Additionally, the existence of dependable cash flow and management make it easier to acquire debt financing and increase leverage which suits a first time fund. Furthermore, Brazos’ previous relationships and experience in the market allowed it to mitigate aspects of first fund bias which inhibit the entry of many prospective VC firms into the industry. Brazos’ GTT method is one of its points of differentiation which appear limited in its application to a variety of firms outside the ‘family-owned business’ model.
Net income ratios benefit from improved gross profit calculations but also include increased interest and depreciation expense from the new loan and equipment, lowering net income. Efficiencies brought by reduced energy consumption have an offsetting effect, increasing net
The profit percentage of assets varies by industry, but in general, the higher the ROA the better. We can see a good trend over years in the company. Comments: Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders' equity. The formula for ROE is: ROE is more than a measure of profit; it's a measure of efficiency. A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital.
While outsourcing has negative and positive implications, in the long run the future for American will lean towards the positive side of the scale. Cost reduction, increase