We miss essential information like the interest rate and maturity of the debt to calculate the market value of debt. From the book value of debt and the interest expenses over 2007 we estimate the cost of debt: 2,26/43,08 = 5,25 %. This is 0.7% more than the risk free rate. This seems reasonable when considering the low leverage ratio of the firm and high cash reserves of the firm, on the other side the interest coverage ratio of Tottenham of 1,24 is pretty low. We assume that the amount of debt has been constant over 2007.
Liquidity Ratios Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. The current ratio is the ratio of current assets to current liabilities: Current Ratio | = | Current Assets | | Current Liabilities | | * Interpretation: Current ratio comes from total assets divided by current liabilities. Current assets include cash, accounts and notes receivable (less reserves for bad debts), advances on inventories, merchandise inventories, and marketable securities. This ratio measures the degree to which current assets cover current liabilities. The higher the ratio the more assurance exists that the retirement of current liabilities can be made.
Which of the following statements is CORRECT? Answer: e. If the interest rate the companies pay on their debt is less than their earning power. (BEP), then Company HD will have the higher ROE. 4. Muscarella Inc. has the following balance sheet and income statement data: Cash $ 14,000 Accounts payable $ 42,000 Receivables 70,000 Other current liabilities 28,000 Inventories 210,000 Total CL $ 70,000 Total CA $294,000 Long-term debt 70,000 Net fixed assets 126,000 Common equity $280,000 Total Assets $420,000 Total liab.
Case Recommendation Altoona State Investment Board: December 2008 By Yuwen Chen Question Asked in the Case: Altoona State Investment Board (ASIB) is a limited partner (LP) in Permira’s fund Permira IV. In the third quarter of 2008, ASIB suffered from a substantial loss from the public equity and hedge fund positions and faced to a potential loss on its private equity investments. In December 2008, Permira offered ASIB a chance to reduce its commitment, 100 million Euro, to Permira IV. However, this offer would allow state pension to address its “over-commitment problem”, which appeared to be quite punitive to those investors who accepted the term. As a consequence, the over commitment problem would eventually increase default risks of LPs.
Although you might have made a profit on the sale of the item, there is a cash flow gap as you have not yet received the funds to pay for the item yourself. Simple things like can put smaller businesses in a lot of financial trouble. This cash flow gap could damage credit ratings, miss other opportunities, and force the borrowing of
They assess potential risks before making investment decisions which is shown through Bob and Maggie refusing to take out a loan when they don’t have the means to make repayments as the majority of their money is tied up to their inventory, and their inventory faces a huge unpredictable risk from the weather. In addition Bob and Maggie both have calculations and predictions made using information available to them showing efficiency and awareness of the market conditions; alongside this Maggie’s conservative nature in regards to cost saving has helped them garner up more cash. The company’s weaknesses seem to be their low liquidity levels, which could see them in financial difficulty in an unexpected change in the market conditions, or potentially hazardous weather that could damage their inventory. To add to this risk Maggie has a strong deterrence towards any type of debt financing. 2.
This shows us that discounting the machine will not bring positive cash flows to the buying company. This GRAPH shows us that even though they would’ve met their 5 years maximum plan this opportunity of an investment would not be good because the values we get from the Buyers DCF is less than the current cost of the investment. I would have to decline this bid. Year | Number of Plates | Old Price Per Plate | New Price Per Plate | Buyer Cash Flow | Buyer DCF | Seller Cash Flow | Seller DCF | 1 | 225 | 5.00 | $2.00 | ($5,325) | ($5,325) | $2,335 | $2,335 | 2 | 225 | 5.15 | $2.06 | $695 | $695 | $329 | $329 | 3 | 225 | 5.30 | $2.12 | $716 | $716 | $342 | $342 | 4 | 225 | 5.46 | $2.19 | $738 | $738 | $357 | $357 | 5 | 225 | 5.63 | $2.25 | $760 | $760 | $371 | $371 | Year | Number of Plates | Old Price Per Plate | New Price Per Plate | Buyer Cash Flow | Buyer DCF | Seller Cash Flow | Seller DCF | | | | Totals | $584 | $584 | $3,734 | $3,734 | Client-Specific Parameters | | | | | | | Salvage Value (new machine) | $3,000 | | Salvage value of a new
negative 2500 $.The company needs to raise about 40,000 $ as the ending cash balance for the month of July is negative 40,000 $. The Company can get a short term loan for 40,000 $ which can be repaid in October. 2. Even though the Company started with a Capital of 250,000 $ it still ends up with a zero bank balance. This is because the increase in the collections of Accounts Receivable from customers is not sufficient to recover the total disbursements (variable production cost and the fixed cost).
* Determining the WACC and discounting the Free Cash Flow to Firm to obtain the Fair Value of Firm as on 1st July, 2009. * The Book Value of Outstanding debt is then deducted from the Fair Value of the Firm to calculate the Fair Value of Equity as of 1st July, 2009. Results Table 1 Forecasted Net Income and FCFF for Future Years Year | 2009E | 2010E | 2011E | 2012E | 2013E | 2014E | Net Income ($M) | $4,940 | $4,937 | $4,983 | $5,096 | $5,287 | $5,487 | FCFF | $4,674 | $4,937 | $5,019 | $5,141 | $5,347 | $5,559 | Determination of the Cost of Capital (WACC) In order to calculate the WACC, the value of Beta is first determined by performing a regression analysis on the historical returns of the Wyeth’s stock vs. the historical returns of entire NYSE market over the period of Jan 2004 through end June 2009. The appropriate Beta for Wyeth is determined to be 0.62. The Risk Free rate of return (6-Month T-Bill Rates 2009) is taken as an average of the annualized 6-month T-Bill rate over the
So we can interpret that in the year 2013, the risk of the firm is getting lower as the ratio goes down. As the definition says that higher the ratio, greater the ability of the firm to pay its bills. This tells that Coca-Cola is not really improving their liquidity and efficiency, because their current ratio dropped from the previous year. As of September 29, 2013, and September 30, 2012, the Company had a weighted average interest rate of 6.1%, 5.9% and 6.1%, respectively, for its outstanding debt and capital lease obligations. The Company’s overall weighted average interest rate on its debt and capital lease obligations was 5.8% for YTD 2013 compared to 6.1% for YTD 2012.