A firm’s value depends on the positive net income generated in the past. True False A firm’s value depends on the firm’s ability to generate positive cash flows now and in the future True False When determining the value of a firm, which of the following statements is true? • Inversters are risk neutral. Other things equal they prefer to pay more stocks that are less risky and have uncertain cash flows • Investers love risk. Other things equal they prefer to pay more for stocks that are more risky and have uncertain cash flows.
By using this method the income statement shows a higher income due to the lower value of the cost of goods sold. The balance sheet would also show a higher value for the inventory that is on hand. ABC Company wanted to show that their expenses were lower and their income was higher than what it actually was, resulting in a higher retained earnings value at the end of the period. To the public, it would look as though the company is thriving and paying out larger dividends to stockholders. Stockholders may assume when reading the financial statements that they would be receiving a higher return each month or quarter when in reality that would not be the case especially if they are planning on switching to LIFO.
Caledonia Products Integrative Problem Shaneal Gaither, Nicolle Istre, Tara Shulfer, Laura Curry FIN/370 October 8, 2012 Instructor: Chrissy Helbling 1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project? Caledonia should focus on free cash flow rather than accounting profits. The reason being is because with free cash flow that money coming in can be immediately reinvested into different projects or areas of the firm to start earning higher revenue. By focusing on the incremental cash flows Caledonia can analyze and determine the benefits and the costs to any project.
As the time horizon increases, variable costs rely less on existing factors and restrictions and therefore will begin behaving differently which will in turn affect the cost of production (Wright, 2007). The second way a firm that’s into profit maximization can decide its greatest level of output is by way of the marginal revenue -- marginal cost method. This is done by subtracting the marginal cost from the marginal revenue that a product generates. Using marginal cost and marginal revenue as the bases, profit maximization will be obtained at the point when marginal revenue is equal to marginal cost. If the marginal revenue is greater than marginal cost this would be when a profit maximizing firm would need to increase production until marginal revenue is equal to marginal cost.
Is the use of a monthly average price a net advantage or disadvantage to J & L? Using NYMEX contracts will minimize the asset mismatch aspect of basic risk, along with a better liquidity. However, since diesel fuel is not a traded commodity, it cannot be directly hedged and J&L will suffer a certain amount of basis risk. J&L will also need to post a margin for their future contracts at NYMEX. Using product offered by Continental Bank would require a higher cost for J&L, and illiquid compared with NYMEX.
77.02% 7. Should the project be accepted? Why or why not? The investment project should be accepted because the NPV is greater than zero and the IRR
Keeping in mind the customer buying criteria, how would you increase margins for a low end product? How would you increase margins for a high end product? To increase margins for a low end product you would have to lower the price, for a high end product labor costs would need to be
Debt and Equity Weights The first mistake in Joanna’s calculation is that the weights of Nike’s debt and equity should be based on the market value rather than book value mixes of Nike’s debt and equity. Since market value weights are more relevant to measure cost of capital in the present time, calculation based on historical book value weights is inappropriate and misleading. Noticed the market value of Nike’s debt is very close to its book value, it is the market value of equity that need to be used to calculate the weights.
If there is a large increase in some of the figures of the expenditure, it could mean that there would be either a large decrease in the profits made by the company or that the company’s loss figure has increased suddenly. If there was a decrease on some of the figures in the expenditure, then this could mean that there has been a sudden increase in the profit they are making or the loss figure has decreased suddenly. Increasing VAT If there are increasing prices of VAT, then the company will need to make sure that this doesn’t affect the company to bad. The
The value to the separate transitions would be higher than a combined one. Being the value of the disk drive business diluted in the Veritas stock value, a separation based deal would trigger a valuation of the Veritas business close to its stock price value, plus a higher price for the disk drive business. Finally Silver Lake Partners’ aims to acquire the disk drive operations and probably are not interested in the Veritas stock, that is a very close exchange of money for stock. Transaction Winners and Losers: Main winners would be Seagate shareholders. Will avoid taxes on the Veritas stock swap and acquire a more liquid asset.