Over the last year, its share price has risen from $2.63 to $2.91 and there are no signs of slowing down in its growth. This could be due to investors having strong confidence in the future of StarHub. Comparing StarHub’s book value with its market value, we would consider StarHub’s shares to be overvalued because the market is willing to pay more per share than it is worth. 2. REASONS WHY STARHUB’S MARKET VALUE OF EQUITY IS DIFFERENT FROM ITS BOOK VALUE OF EQUITY Future of Firm Not Reflected Book value of equity is determined by relating the original value of a firm's common stock adjusted for any outflows such as dividends and stock buybacks, and inflows of cash such as retained earnings to the amount of shares outstanding.
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.
P5-3 - Risk Preferences Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Currently, the firm earns 12% on its investments, which have a risk index of 6%. The expected return and expected risk of the investments are as follows: |Investment |Expected return |Expected risk index | |X |14% |7% | |Y |12% |8% | |Z |10% |9% | a) If Sharon were risk-indifferent, which investments would she select? Explain why. If Sharon were risk-indifferent, she would select Investments X and Y because they have a higher return than 12% and risk would not be pertinent.
Du Pont has been known to be ultra-conservative in its capital structure but it has deviated from this policy twice over the last 10 years. The case mentioned that due to Du Pont’s substantial projected capital spending requirements it would be impossible for the company to return to zero debt policy - its current policy. The case then provided two (2) alternatives Du Pont can choose with regards to the debt policy it may adhere and convey to its investors: (i) 25% debt-equity ratio or conservative debt policy; or (ii) 40% debt-equity ratio or aggressive debt policy. In analyzing the options available to Du Pont, the group listed down the factors which either support (PRO) or oppose (CON) such alternative. These factors were either lifted from case facts or considered to be the advantages and disadvantages of either a conservative or aggressive debt policy.
On the other side if the insurance rates are lowered, people would opt to buy more insurance, and in that case also insurance agents would make almost similar income as before because people are buying comparatively higher insurance but the rates are low. However, if the rates are regulated as in the case in some states, insurance agent will still make almost similar amounts as the insurance rates are regulated and demand is as much as it would be otherwise if the rates are not regulated. The long run and the short run do not refer to a specific period of time such as 3 months or 5 years. The difference between the short run and the long run is the flexibility decision makers have. "The short run is a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied.
CCI would be taking a somewhat high risk by issuing additional stock due to the uncertainty about the offering price. Having a low P/E ratio with respect to the rest of the market, and the replacement cost of the firm being greater than its book value (argument 3), there is a good chance that the current stock price and the proposed offering Although long-term debt is a better financing choice a few of the drawbacks are pointed out. Debt holders claim profit before equity holders, so the chance that profits may be lower than expected, increases risk to equity may reduce or impede stock value. However, in extreme financial situations such as a recession period, CCI would still be able to increase its cash during a recession period with all debt capital structure. Also, there is a remaining 12.5 million that would have to be paid at the expiration of the bonds, but that could be paid off by issuing new bonds or additional equity at that time.
This can affect the growth of the company. By adopting IFRS, U.S. will also be adopting a big risk, if the quality of the new standards do not match the U.S. GAAP. Looking at the various possibilities of adopting IFRS in the U.S, it can be said that it is a big decision to be made. Although, in my opinion we should adopt to IFRS in financial reporting only if the benefits outweigh the costs of transition. If adopting IFRS benefit monetarily and make the transition easy for the investors, auditors, and the public companies, then there should be no harm in accepting it for financial reporting
dividend paid by the stock and the appreciation of stock price since the investment was made. From the profitability point of view, factors such as dividend yield and stock appreciation over the last 5-yr period are used as the major decision making criteria to decide whether to invest in any of these two companies, if so, which one? Other financial data are used to verify the financial health of the two companies. The supporting financial data is equally important in the final decision since the profitability of a company can’t guarantee its long-term viability. Other financial data are used to verify
Precedents usually yield higher valuations than trading comps because a buyer must pay shareholders more than the current trading price to acquire a company. This is referred to as the control premium (use 20 percent as a 31 Customized for: JJ (email@example.com) Vault Guide to Private Equity and Hedge Fund Interviews Finance benchmark). If the buyer believes it can achieve synergies with the merger, then the buyer may pay more. This is known as the synergy premium. Between LBOs and DCFs, the DCF should have a higher value because the required IRR (cost of equity) of an LBO should be higher than
The first weakness is that as more stocks are outstanding, the amount of dividends payable increases. The value of the stock may also decrease if there are too many shares available. Another disadvantage is that stock financing is not tax deductible. Finally, as stocks are issued, there are more shareholders to please. Organizations face many opportunities when selecting a means to meet capital needs.