A positive trend shows that total liabilities have dropped $1.7 million, which is accounted for by a $2 million, or 42%, decrease in long-term debt. Total stockholder’s equity has increased over $600,000 to $22.1 million, which represents a 3% improvement (“University of Phoenix,” 2006). Riordan has made significant strides in paying off debt and reducing liabilities by 12% and increasing stockholder’s equity in these 3 years. These positives continue to make Riordan Manufacturing a valued company to be sought after by investors. Income Statement Analysis Table
The basic idea was that unit costs, such as direct labor, declined as a function of cumulative output. As a result, the faster Airbus could sell planes, the more profitable it would become. This was especially true in the early years when cumulative output doubled relatively quickly. Discount rate and operating margins – Using a discount rate of 11.0% and operating margin of 15% the factors in Table 1 imply a NPV of negative $296 million and NPV of free cash flows (FCF) of negative $5,139 million. Assuming 2% growth, the terminal value has a NPV of $4,843 million for 2009 and beyond.
Fin 517 Ch. 15 Notes Debt and Taxes 15.1 The Interest Tax Deduction 1. interest tax shield – additional amount that a firm would have paid in taxes if it did not have leverage. Interest tax shield = corporate tax return X interest payments 2. because interest expense is tax deductible, leverage increases the total amount of income available to all investors 15.2 Valuing the Interest Tax Shield 1. when a firm uses debt, the interest tax shield provides a corporate tax benefit each year. 2. Because the cash flows of the levered firm are equal to the sum of the cash flows from the unlevered firm plus the interest tax shield, by the Law of One Price the same must be true for the present values of these cash flows.
Midterm Exam 1 1. Businesses can be organized as A) sole proprietorships B) partnerships C) corporations D) any of the above E) None of the above Answer: D 2. Which of the following would be considered an advantage of the sole proprietorship form of organization? A) Wide access to capital markets B) Unlimited liability C) A pool of expertise D) Profits taxed at one level E) None of the above D) 3. One common reason for partnerships to convert to a corporate form of organization is that the partnership: A) faces rapidly growing financing requirements.
Operating income moved along the same path for the period albeit at a lower rate. The company’s invest ment in its self-insurance fund and interest income contributed significantly to the difference between operating income and net income. Revenue fell off by 12% in 2009 however; it increased by 22% in 2010. The company was able to increase it domestic and commercial rate after an application was made to the Fair Trading Commission. Fuel expenses grew at a faster rate than sales, fuel costs although seeing a fall off in 2009 by 20.52% rose by 29% in 2010.
• It is assumed that Working Capital increases in proportion to growth in Revenue of 9% till 2019 and 4% for 2020. • Interest is not in calculation of Cash flows since we have considered its effect while calculating WACC. On analyzing the revenue streams of the Company, we see that it generates roughly 40% of its income from Broadcasting rights, followed by Attendance (23%), Sponsorship (21%) and Merchandise (7%). Whereas on the expenses side, payroll accounts for 74% of the Operational costs while only 24% is spent for the stadium operations. With the current high operating cost (Operating costs: Revenue = 0.93) it is not a surprise that the EBIT is only 3.7% of total Revenues while Net income account only for 0.5%.
In evaluating different alternatives, it is useful to concentrate on: a. variable costs b. fixed costs c. total costs d. relevant costs Answer: d Difficulty: 1 Objective: 2 Terms to Learn: relevant costs 4. Jim’s 5-year-old Geo Prizm requires repairs estimated at $3,000 to make it roadworthy again. His friend, Julie, suggested that he should buy a 5-year-old used Honda Civic instead for $3,000 cash. Julie estimated the following costs for the two cars: Geo Prizm Honda Civic Acquisition cost $15,000 $3,000 Repairs $ 3,000 — Annual operating costs (Gas, maintenance, insurance) $ 2,280 $2,100 What should Jim do? What are his savings in the first year?
There is an increase in the consistent growth in the sales though the increase is low in the fourth year this shows stability. There is a steady increase in the profitability ratios for example the gross profit margin thus one can draw the assumption that there is an increase in the profitability. The interest coverage is reducing steadily, the company from 2009 is paying its interest in less than 3years hence it’s a durable competitive
Expansion into Great Britain occurred a few years later. In 1993, Budget Rent-a-Car was the third largest company in the car rental industry with over 3,200 locations worldwide and sales of $2.4 billion in 1992. Today, Budget offers 160,000 vehicles for rent worldwide. (www.budget.com) This case focuses on Budget Rent-a-Car initiating an incentive plan that would be viable both in the United States and France. Corporate vice president of training and compensation, Jack McEnery, and vice president of human resources for Europe, the Middle East, and Africa, Sylvia McGeachie, felt that they had developed a well thought out design.
JetBlue was able to grow its revenues to over 320 million in 2001, compared with a $21.2 million operating loss on $104.6 million in revenue the year before. JetBlue recorded a decent profit margin of 70% in 2001. Financial earnings of the company are presented in Exhibit 1. JetBlue plan to go public could be explained by the fact that since the company is doing well, venture capital wants to cash out now. Using the discounted free cash flow for equity