What would the cash conversion cycle for The Greek Connection have been in 2012 had it matched the industry average for accounts receivable days? Question 5. Assume the credit terms offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30. Normal Cost of Trade Credit = [Discount percentage/(100-Discount percentage)]*[365days/(credit outstanding-Discount Period)] Normal Cost of trade credit = (3/97)*(365/30) = 37.63% Question 6.
Page 484 has formulas!! 6. When the firms maintains a target leverage ratio, we compute its levered value V^L as the present value of its free cash flows using the WACC, whereas its unlevered value V^U is the present value of its free cash flows using its unlevered cost of capital or pretax WACC. 15.3 Recapitalizing to Capture the Tax Shield 1. when securities are fairly priced, the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage 15.4 Personal
b. The net profit for a company in 2009. Quantitative: I would say the net profit for the company is quantitative, because it is numeric value and we can also ask the question of “how much”. c. The stock exchange on which a company’s stock is traded. Quantitative and Qualitative: If the question suggested that a type of stock within the company is traded for an example a type such as Soft drink versus Juices, then it is Qualitative.
ACCOUNTING CASES, RESEARCH, AND ANALYSIS GROUP ASSIGNEMNT #1 MEMORANDUM TO: Professor Siyi Li FROM: Group 5 DATE: October 3, 2013 SUBJECT: Performance Based Stock Compensation This memo is an analysis of the case in which the Company Sooner or Later Inc granted “at the money” performance based stock options and the fair value is not easily determinable. The grant-date fair value of each award is $9. With the revenue target factored into the fair value assessment the grant-date fair value is $6. Management believes it is probable the company will achieve cumulative revenue in excess of $10 million. General Priciple – Performance are only recorded when the target is proable to be acheived Sooner and Later Inc On January 1, 2006, Sooner or Later Inc. granted 1,000 “at-the-money” employee stock options (i.e., the exercise price was equal to the stock price on the grant date).
The first step in helping Prescott was to calculate a new cost of capital—as the one used by WPC was 10 years old. I used the weighted average cost of capital equation to calculate a new WACC of 9.97%. My calculations are and assumptions are shown in further detail in the attached sheets. Next, I had to generate the free cash flows for years 2007-2013 using Prescott’s given assumptions. * $18 M purchase price * $1.8 M selling price * Investment in PPE (2007) was $16 M * Investment in PPE (2008) was $2 M * $4 M in Sales (2008) * $10 M in Sales (2009-2013) * COGS: 75% of Sales * SG&A: 5% of Sales * $2 M Operating Savings (2008) * $3.5 M Operating Savings (2009-2013) * Depreciation was on a straight-line basis for 6 years beginning in 2008 * $18 M / 6 years = $3 M * 40% tax rate * NWC: 10% of Sales * Salvage value was zero * The FCF per year was determined using the following: * Net Income + Depreciation Expense - ∆ Net Working Capital + Investment in PPE After generating the FCF for each year, I had to solve for NPV and IRR to value the investment.
How does their accounting for inventories affect comparability between the two companies? (d) Which company changed its accounting policies during 2009 which affected the consistency of the financial results from the previous year? What were these changes? SOLUTION (a) Coca-Cola indicates its business is nonalcoholic beverages, principally soft drinks, but also a variety of noncarbonated beverages. It notes that it is the world’s largest manufacturer, distributor, and marketer of concentrates and syrups to produce nonalcoholic beverages.
A firm's current balance sheet is as follows Assets $100 Debt $10 Equity $90 A) What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information? 1. Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% (.0)(.08) (1.0)(12) .120 10 (.1)(.08) (.9)(.12) .116 20 (.2)(.08) (.8)(.12) .112 30 (.3)(.08) (.7)(.13) .115 40 (.4)(.09) (.6)(.14) .120 50 (.5)(.10) (.5)(.15) .125 60 (.6)(.12) (.4)(.16) .136 B) Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with the firm's current balance sheet. What course of action should the firm take?
Star River Electronics Ltd. Team 14 Constantine Brocoum Courtney Delia Stephanie Doherty David Dubois Radu Oprea December 19th, 2009 Contents Objectives 1 Management Summary 1 Financial Health 1 Financial Forecast for 2002 and 2003 3 Key Driver Assumptions 5 Star River WACC 5 Free Cash Flows of the Packaging Machine Investment 7 Appendices 7 i. Objectives This report seeks to answer the following five questions about Star River Electronics Ltd.: 1. Assess the current financial health and recent financial performance of the company. What strengths and/or weaknesses would you highlight to Adeline Koh?
Assignment 2: AirThread Connections Group 2: Taylor Bullock, Zoey Hourihan, Ben Kanter, Julie Ngai, Fernando Zavala FINE4600 Question 1: A. The discount rate Ms. Zhang should use for un-levered FCF for 2008-2012 is 7.30553%. Because the FCF are un-levered, this implies the firm has no debt. If the firm is all equity financed, the appropriate rate to discount the cash flows is the cost of equity. We calculated cost of equity using the CAPM method, where re = rf + B(EMRP) The case stated that the BBB+ rated bonds have an interest rate of 5.5%, or 125 bps over the current yield on 10 year US treasury bonds.
FM421 – Applied Corporate Finance Case Study: Tottenham Hotspur plc 25th January 2013 201128545 201125438 201121479 201119785 201130179 201129057 1) Valuation based on Discounted Cash Flow In order to perform a DCF approach we first calculated the WACC and then the FCF. WACC WACC= rd(1-t)*[D/(D+E)] + re*[E/(D+E)] t = 35% (from the case, exhibit 1) rd= rf= 4.57% (exhibit 1, assuming β of debt = 0) Net Debt/EV=0.11 (EV = Market Value of Equity + Net Debt) re= rf+βe*(rm-rf)= 4.57%+ 1.29*5%=11.02 (under CAPM assumptions) [E/(D+E)]= 1-0.12=0.88 WACC= (0.0457)*(1-0.35)*0.11 + (0.1102)*0.89= 10.12% Free Cash Flow FCF= EBIT(1-t) – CAPEX – ΔNWC + Depreciation As EBIT and tax rate are given we have to calculate the ΔNWC. ΔNWC=Inventory + A/R – A/P As accounts receivable and payable are sensitive to sales changes, we assume that A/P and A/R change but their ratio to sales remains constant over time. We assume the same for the ratio of inventory/merchandise sales. (A/P)/Sales= 19.99/74.1 = 0.26977058 (A/R)/Sales= 64.4/74.1 = 0.869095816 Inventory/Merchandise sales= 1.17/5.2=0.225 We then multiplied the ratios for the equivalent factors (sales and merchandise sales) on the pro-forma balance sheet for the years between 2008 and 2020 and found the ΔNWC for every year.