The basic answer is that share repurchases are great when the share price is undervalued, and not-so-great when the share price is overvalued. To put it into a more useful context, if you would otherwise reinvest your dividends or invest new capital into the company at current stock prices, then share repurchases are useful to you because the company basically does it for you. The alternative is that the company could pay you a higher dividend, but you’d be taxed on that dividend and reinvest it into the company anyway. On the other hand, if you would not reinvest dividends or invest new capital into the company at current prices, then share repurchases are not in alignment with your current outlook, and it would be better for you to receive a higher dividend. Something else to be considered is that when a company uses money for share repurchases when it could be paying a higher dividend instead, the company’s management is limiting your control and increasing theirs.
Going public lowers a company's cost of capital. This is because investors are willing to pay a higher price for a company's stock if the shares are publicly issued due to that the shares can be sold easily compared to the privately issued shares. In addition, publicly traded businesses are usually better known than non-publicly traded businesses. The company can gain better image showing that the company is stable and continuously trading. However, there are some disadvantages: Going public is an expensive process, including legal and accounting fees, filing fees, travel costs, printing costs and underwriter's expense allowance.
With these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Here the issue is of financing the merger. A firm’s optimal capital structure is that mixture of debt and equity than minimizes its weighted average cost of capital (WACC). Since the after-tax cost of debt is lower than equity for many corporations. It turns out that, while debt reduces a company’s tax liability because interest payments are deductible expenses, increasing amounts of debt raise both the cost of equity capital and the interest rate on debt because of the increasing probability of bankruptcy.
Furthermore, it also mentioned in the theory of Arthur Laffer that any hike in taxes would lead to an increase in revenue in the short term but it would be offset by decreased tax returns in the long term. It also worth mentioning that tax evasion could become a problem with high income tax rates. Examples of tax evasion schemes involve people investing in businesses that make a loss, taking advantage of the tax breaks involved. Overall, income tax rates that create an incentive to work are likely to increase productivity and help an economy grow. Income tax changes affect aggregate demand in various ways.
Who should lead the way for Pan-Europa? They should incorporate strategies that would increase their stock price. Due to low stock prices, raiders are buying the stocks. They should increase net income and gross sales to drive up the stock price. They should reduce their debt due to high debt to equity ratio and capitalize on their increased market share.
1. Describe Costco’s Business Model. Costco’s business model is based on the idea of making profit by selling non-expensive merchandize by making it up on volume. The company sells high amount of products in a wide range of merchandise categories at low prices. Management believes rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution, and reduced handling, enabled Costco to operate profitability at significantly lower gross margins than its competitors.
Price liberalization is aimed at solving two major problems: eliminating the deficit on the commodity and resource markets and increase the efficiency of the economy through effective redistribution of resource. Free prices allow enterprise to expand its activity. When prices are free, enterprises run only profitable business. Thus supply can meet demand. Some of the raw materials may be in short supply.
Traditionally Hill Country was a slow growth company that used cautious risk – averting strategies to grow the company. Under Keener’s direction, Hill Country had become a profitable company that investors thought highly of. Excluding the data from 2007 and 2008 Hill Country saw an increase in sales and net income due to their efficient operations. An important consideration for this case is the low interest rate set by the Federal Reserve. If interest rates remain at the level they currently are, then a capital structure with debt financing would be a good option.
Free cash flow represents the cash that a company has on hand after it maintains and/or expands its asset base. This is important because it allows a company to pursue opportunities that enhance shareholder value. With little or no cash, it is difficult to develop new products, make acquisitions, pay dividends and most importantly reduces debt. The biggest concern is long-term debt. Increases in interest rates can drastically affect company profits and make future cash flows less predictable.